Douglas Alexander: Working with police and other agencies my Department works to maintain effective and proportionate security regimes that seek to minimise vulnerability across the transport networks. For obvious reasons it is not our practice to detail all of the required measures or procedures.

James Brokenshire: Since the terrorist attacks of 7 July 2005, the focus of attention has understandably been on the preparedness of the capital to respond to and deal with any future terrorist attack. However, we have seen from Madrid how other commuter or domestic rail services may be viewed as a potential target. What steps is the right hon. Gentleman taking to ensure that train operating companies are engaged in the threat reduction process, and what role does he see for the British Transport police in that regard now that the plans for police merger have been dropped?

Tom Harris: I shall be honoured to accept any free drinks that the hon. Gentleman wants to offer at Strangers Bar, but he has probably been misinformed about cuts to services. The British railway is expanding at a greater rate than that in almost any other European country. If he wants to write to me about specific aspects of the service about which he is worried, I shall be more than happy to discuss them with him. However, there is a massive increase in the number of passenger journeys in the British rail network, with more than 1 billion passengers carried on it every year. Such a service has not been experienced since 1961.

Tom Harris: As a former employee of Strathclyde Passenger Transport, it gives me great pleasure to pay tribute to its work in Croy and to the efforts of the Labour-led Scottish Executive, which have been a partner in the project.

Vera Baird: My right hon. and learned Friend the Minister of State says that the person must have been a barrister, but it was not me. I know that the right hon. Member for Leicester, East (Keith Vaz) has written a piece of work on the subject, which I trust, as it will soon become a Hollywood movie. Managers keep records. The Department has changed significantly in past years. For example, there has been the merger of magistrates courts to create Her Majesty's Courts Service. The Department has grown bigger and it has to integrate. It is reforming all the time. For instance, we have distanced ourselves from involvement in the appointment of Queen's counsel, which was successfully accomplished under the new system yesterday. We have also distanced ourselves from the appointment of judges, too. We have started to engage in the subject of social exclusion, and have taken a number of excellent measures that I know he supports, such as encouraging the Judicial Appointments Commission to embark on the recruitment of a more diverse range of people to the judiciary. Those changes have been supported by consultants, and that is a perfectly reasonable use of their services.
	I understand that the gentleman whose cost per day was referred to had particularly specialist skills— [Interruption.] I certainly hope that he did. He was apparently dealing with the way in which the courts handle the £5 billion of public money that they must invest while it is in their custody. That was a high-risk issue for him to consider, and I hope that he did that well.

Vera Baird: I am sorry to say that I did not take part in one of the programmes myself—I am gratified to say that there was no need. They were for officials. I shall write to the hon. Gentleman with as much detail as I can summon, if he has a genuine curiosity in the matter.

Barbara Keeley: Salford city council has a good record in electoral administration, but it has some concerns. Members of the council wanted me to ask the Minister about section 75 of the Electoral Administration Act 2006. Does she believe that the requirement to sign for ballot papers could lead to queues building up in polling stations, which might deter voters? Secondly, as comprehensive checks cannot be made on individual signatures, is there still merit in having people sign for a ballot paper?

Jim Cunningham: I beg to move,
	That leave be given to bring in a Bill to amend the Gambling Act 2005 to allow for increased provision of casinos; and for connected purposes.
	The Bill's objectives are to amend the Gambling Act 2005 to allow a minimum of eight regional casinos, with the onus on the regeneration of key cities, as initially proposed by the Government. After the Act's consideration in Committee, the Government introduced new clauses to set limits on the number of casinos. At that point, the number of regional casinos was set at eight, but as the Government faced opposition, that number was reduced to one. As a result, the national potential for jobs and investment will not be fully achieved.
	The failure to recognise that loss of potential investment could result in the loss of about 22,000 possible jobs and an additional 17,000 support jobs. In total, the opportunity for 40,000 new jobs could have been lost, not to mention reductions in investment. The failure to support all the main regeneration schemes will have a negative effect and may put back regeneration programmes by about a decade. In total, the UK could lose the potential for more than £5 billion in investment, particularly in deprived areas.
	In terms of protective legislation, the Secretary of State has addressed concerns regarding habitual gambling, stating that she does not think that casinos would increase problem gambling, and that she would prefer to close them if they did. In advance of the implementation of the relevant provisions of the Gambling Act 2005, and every two or three years thereafter, the Government intend to fund a national study that will measure the impact that any new casinos would have on the surrounding areas and the issue of problem gambling. In addition, provision has been made in the Act to establish the Responsibility in Gambling Trust. The trust has been established on a voluntary basis to provide funding to support problem gamblers and their dependants.
	The casino advisory panel's criteria, as laid down by the Secretary of State, were to ensure that location satisfies need, for there to be the best possible test of social impact to include areas of need and regeneration, for consideration to be given to areas that are likely to benefit in those terms from a new casino, and to ensure that the areas selected were willing to license a new casino. The panel condensed the applications down to a shortlist of eight. On the shortlist were Blackpool, Wembley, Cardiff, Glasgow, Manchester, Newcastle and Sheffield. I believe that the Government should increase the numbers of casinos, as the decision that has been taken is not based on the best interest of those areas that are in dire need.
	Local authorities should not be fighting each other over restricted resources. Rather, the Government should allow a fair system of opportunity, and allow more than one area of need to benefit from regeneration, investment and jobs. The Government have hinted that legislation could be revisited, and that the permissible number of regional casino licences could be increased, given sufficient support from local authorities, MPs and the public. It should be remembered that the Government expect that a regional casino will be a major development, offering clear potential for regeneration, and providing not only a range of gambling activities, but also perhaps including hotel accommodation, conference facilities, restaurants, areas for live entertainment and other leisure attractions.
	There is already a casino in Coventry that would meet the criteria, should the Government be willing to increase the numbers. In contrast to many other proposals, Coventry's submission was based on an extensive, independent assessment. Therefore, I propose that an amendment be made to the Act, increasing the number of regional casinos from one to a minimum of eight.

Julie Kirkbride: I rise to speak against the desire of the hon. Member for Coventry, South (Mr. Cunningham) for there to be an amendment to this gambling legislation. I do so despite the fact that I have a great deal of respect for the hon. Gentleman, who is a neighbour and colleague in the west midlands, as I believe that he is profoundly wrong to think that his constituency will benefit from such a development. If I may say so to the hon. Gentleman, I also think that he is being used somewhat as a stalking horse by his Government, to test opinion in the House on whether there is an appetite to change what was set out by the Gambling Act 2005. The simple fact is that it is not necessary to have this proposed legislation, because the relevant provisions in the Act can be changed by statutory instrument, subject to a vote by all Members.
	It might be helpful if I remind the House about how we got the Gambling Act 2005. When the Government introduced the original Bill, they intended to have a free-for-all on the development of casinos across the country, subject to demand as the operators saw that. As time passed, and as Members spoke out, along with other sections of society—including the  Daily Mail, the Minister for Sport might be fond of remembering—it became clear that it would not be acceptable to have a major extension of such Las Vegas-style casinos across the United Kingdom. Given that a general election was imminent, the Government agreed to the idea that there should be only one regional casino, eight large casinos and eight small casinos, and that that would be the way that the measures would be proceeded with, unless the House decided otherwise, through a statutory instrument such as that which I mentioned.
	The Minister for Sport, who is in the Chamber, might remember that my hon. Friend the Member for East Devon (Mr. Swire) asked him about the matter during Question Time just a week or so ago. The Minister said:
	"The Conservatives decided to come back with the proposal of one regional casino, which we accepted because we wanted to get the Bill on to the statute book in order to protect the vulnerable in our society. That is where it now stops—at one regional casino—unless the hon. Gentleman says to the Government that the Conservatives want to change the proposal."—[ Official Report, 9 October 2006; Vol. 450, c. 11.]
	I applaud the Minister's remark to my hon. Friend, but although that represents the public face of the Government, their private face appears to be somewhat different. I suspect that the Secretary of State is much keener on a bigger free-for-all on casino development than the Minister is, at least in public. Following a meeting that took place between the Secretary of State and Coventry Members to petition her about a casino in Coventry, the hon. Member for Coventry, North-West (Mr. Robinson) wrote on his website:
	"It was a very positive meeting. She invited us to submit early day motions and a ten-minute bill asking for Coventry to be included on the shortlist, and also to get the Government to increase the number of super casino licences from one to eight."
	Conservative Members and I reject wholesale the private view that the Government have expressed to Labour Members.
	Of course, the Government would like the number of such casinos to be increased from one to eight because they face the political problem of who the one licence should be given to. Technically, that should be a matter for the casino advisory panel, but we all know that Ministers have views on the issue.

Julie Kirkbride: I am grateful for your guidance, Mr. Speaker.
	We found out that the Government had views on who they would like the licence to be awarded to when we heard about the Deputy Prime Minister's visit to a ranch in Colorado owned by Mr. Philip Anschutz, who also happens to own the dome. Mr. Anschutz is determined to get a regional casino licence for the dome, but were such a licence to be granted, the Government would face the huge embarrassment of having to tell everyone else in the country that the development that is attached to that licence—such as it is—had gone to the most prosperous part of the United Kingdom, rather than another area.
	I hope that the casino advisory panel—and the Government, for that matter—will give the one licence available to Blackpool. That would allow Blackpool to revive its tourism and enjoy the regeneration attached to the proposals that was set out by the hon. Member for Coventry, South. The best case that has been put forward is for such a development to be in the Blackpool area.
	I should warn the people of the Blackpool area that such a casino would involve significant moral hazards. One of the arguments that is often cited about the development of casinos is that we have insufficient exciting opportunities for betting and gaming in the United Kingdom today. I profoundly refute such a suggestion because there are ample opportunities for betting. We can bet at the races, in betting shops and on the internet. We can bet on national savings bonds, if we want to buy some. We can bet on the lottery. We can win more money than we ever thought that we would have, and lose more money than we would hope to do, by participating in activities that are available in the United Kingdom today. We do not need Las Vegas-style betting casinos, which offer a profoundly different form of gambling and are almost certainly bound to lead to a big increase in addictive gambling in the United Kingdom.
	Hon. Members who have not seen such casinos should visit one for themselves. They are made up of huge complexes in which sheds upon sheds are filled with gaming machines. People put their coins in those machines and pull the levers in the hope that they will win the jackpot prize.
	The machines are deliberately designed to encourage the player to believe that one more pull of the lever will win them the jackpot, but the owners of the machines have programmed them to pay out exactly the amount that the operator is prepared to lose. No gaming is involved; the machines are simply for money-making.
	Gaming machines pose a significant moral hazard for our fellow countrymen, as was shown in the recent PricewaterhouseCoopers report, commissioned by Greenwich council to assess the implications of such developments in the Greenwich area. The report was leaked to the  Evening Standard but it has not yet been published due to its explosive contents. We are led to believe, however, that the report notes that groups such as young people, the poorly educated, pensioners and people who play on slot machines are at high risk and more likely to become addicts. I cannot believe that Labour Members are keen to see that happen in their constituencies.
	The social costs of such developments include bankruptcy, suicide, illness and crime, which can involve money acquired from family, friends and employers under false pretences. Those are the moral hazards of the casino industry and the Government were right to proceed on the basis of a pilot project, by offering only one regional licence. It is right and proper that we assess the impact of that project before we proceed with a roll-out across the United Kingdom, whether it involves one, eight or 100 new casinos. We want to know about the implications before we go ahead with such a worrying social development, so I oppose the Bill.

Margaret Hodge: I beg to move,
	That the Order of 6th June 2006 (Company Law Reform Bill  [Lords] (Programme)) be varied as follows:
	Paragraphs 4 and 5 of the Order shall be omitted.
	Proceedings on consideration and Third Reading shall be completed in three days.
	Proceedings on consideration shall be taken on each of those days as shown in the first column of the Table and in the order so shown.
	Each part of those proceedings shall (so far as not previously concluded) be brought to a conclusion at the time specified in relation to it in the second column of the Table.
	Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at 6.00 p.m. on the third day.
	
		
			 FIRST DAY 
			  Proceedings  Time for conclusion of proceedings 
			 New Clauses relating to Chapter 2 ofPart 10, Amendments relating toChapter 2 of Part 10 7.00 p.m. 
			 New Clauses relating to Chapter 1and Chapters 3 to 9 of Part 10,Amendments relating to Chapter 1and Chapters 3 to 9 of Part 10. 8.30 p.m. 
			 New Clauses relating to Part 11,Amendments relating to Part 11. 10.00 p.m. 
		
	
	
		
			 SECOND DAY 
			  Proceedings  Time for conclusion of proceedings 
			 New Clauses relating to Chapter 5 of Part 16, Amendments relating toChapter 5 of Part 16, new Clausesrelating to Chapters 1 to 4 and 6 to12 of Part 16, Amendments relatingto Chapters 1 to 4 and 6 to 12 of Part 16. 3.00 p.m. 
			 New Clauses relating to Part 8,Amendments relating to Part 8, new Clauses relating to Part 12,Amendments relating to Part 12,new Clauses relating to Part 13,Amendments relating to Part 13,new Clauses relating to Part 4,Amendments relating to Part 4, newClauses relating to Part 5,Amendments relating to Part 5. 5.30 p.m. 
			 New Clauses relating to Part 15,Amendments relating to Part 15,new Clauses relating to Part 14,Amendments relating to Part 14. 7.00 p.m. 
		
	
	
		
			 THIRD DAY 
			  Proceedings  Time for conclusion of proceedings 
			 New Clauses relating to Part 44,Amendments relating to Part 44,Amendments relating to Clauses521 to 523, new Clauses relatingto Part 17, Amendments relatingto Clauses 483 to 520 and524 to 553, remainingnew Clauses, remainingamendments to Clauses,new Schedules, amendmentsto Schedules, remaining proceedingson consideration. 4.00 p.m. 
		
	
	The motion increases the time allowed on Report and Third Reading from one day to three days. It also sets out an order of consideration and a time for conclusion of proceedings on various parts, which has been discussed through the usual channels to assist us in making the best use of the time. This protects time for Members to debate the areas regarded as most important, and allows time for scrutiny of other areas of the Bill.
	We recognise that the Bill is long and complex, but there has been a high degree of collaboration with interested parties. The Bill has had the benefit of detailed scrutiny in another place and of 11 days in Committee. There is a strong consensus on a great deal of it.

Alan Duncan: That option is definitely available to the House, but I doubt whether I will persuade the Minister to entertain it, because instead the Government insisted on the Committee stage finishing in July and Standing Committee D was not able to examine any of the consolidation measures that were passed without debate at the end of the Committee stage, as the programme motion required.
	As a consequence, we estimate that, during the next three days, the House is being invited to consider about 200 amendments to amendments that the Committee was not able to consider in July, but which have since turned out to be defective in some way. Those amendments to amendments, together with the hundreds of other new amendments and 88 new clauses, were tabled only last week. That has inevitably placed the Opposition Front-Bench spokesmen in some difficulties, even with the assistance of their advisers, and even with the best will in the world, it is simply beyond the capacity of any Back Bencher to have any sensible appreciation of the scale of what is being attempted.

Alan Duncan: My right hon. and learned Friend is absolutely right. Perhaps I can just pay credit to those on the Opposition Front Bench, particularly my hon. Friend the Member for Huntingdon (Mr. Djanogly), and those who have slaved away with him for the best part of a year on the Bill. No sooner have they climbed the mountain and reached the summit than the Minister gives us yet another mountain to climb. Unbelievably, a further 24 new amendments have been tabled only today. Not only are some of these politically sensitive, but we did not even have so much as a courtesy call from the Government to say that they had been tabled.
	In trying to put some order around the vast array of amendments that the House is being invited to consider, you, Mr. Speaker, have identified nine separate debates for today, 12 separate debates for Wednesday, and under the programme motion presented by the Government, 31 debates on Thursday. Proceedings on Report on Thursday will be further curtailed by the weekly business statement and by the Third Reading debate, which I understand is due to commence at 4 o'clock. That means that each subject, identified by you under the rules of the House, let alone individual amendments, will have less than seven minutes for the Government to explain the case for their amendments, for the Opposition then to raise their concerns and for the Government to reply, let alone leaving any time at all for Back Benchers to make a contribution; and that is only if there are no Divisions, which would eat into the time available.
	There is simply no way that the House has been or will be able to discharge its duty to exercise proper scrutiny over this enormous piece of legislation. We contend that the way in which the Government have managed and programmed the Bill during its progress through the House has further undermined the reputation of the House of Commons in its role as scrutineer of legislation.

David Howarth: I sympathise with what the hon. Member for Rutland and Melton (Mr. Duncan) has just said. The real problem is not just the amount of time allowed on Report, given all the new amendments and new clauses, but more importantly, the timing of this stage of the Bill. As the hon. Gentleman said, Opposition Members have had only a short time to digest, understand and consider the various late amendments.
	However, most of the problems go back to a decision, which unfortunately seemed to have universal consent, at least in all parts of the other place, to bring into the Bill's scope a massive consolidation exercise, including hundreds of new clauses from existing company law. This Bill was originally called the Company Law Reform Bill, and its intention was to reform parts of company law. It is now called the Companies Bill thanks to an interesting vote in Committee, which the Government managed to lose—technically it was a free vote on their side. The Bill is now a general Companies Bill. It tries to consolidate the whole of the existing law, and it is that specific decision which has led to the various difficulties.
	The Government have been courteous and helpful to Liberal Democrat Members in making sure that there is enough room to debate the topics that we want to debate. Given how much is going on in the Bill, however, the fundamental problem is that there is not enough time for debate, because at this time of year there is not enough time to allow additional days for discussion. We are in a very difficult position, which was entirely foreseeable when all sides decided to change the Bill from a reform Bill into a consolidation Bill. As it stands, the programme motion is not adequate.

Austin Mitchell: I must preface my remarks by saying that I will, of course, vote with the Government on the programme motion. Having been absent from so many votes owing to illness, I want to burnish my record of loyalty and show just how grovelling and subservient I can be.
	This is a fairly shocking way to proceed, because we do not have time adequately to consider the Bill and the amendments. The Bill is based on a series of concessions to the vested interests in the field, which is the antithesis of what we should be doing—we should learn from America, where running a company has become a matter of engaging in financial manipulation to enhance the share price, which enhances the income of the people at the top through share options and pay schemes. Those dodges are being used both here and in the United States, and such practices led to the collapse of Enron and many prosecutions by the Securities and Exchange Commission, which is now, as they say in the United States, "seeing the perps walk". We should be countering those practices, which brought about the collapse of huge American companies and which are all practised here. We should also combat the trend towards excessive rewards and collusion between auditors and people who run companies to enhance profits, share prices and returns to shareholders and directors.

Austin Mitchell: You are, of course, right, Mr. Speaker. I am expressing my pent-up feelings, which would have come out earlier.
	The Government have clearly claimed their prerogative to amend the Bill, because they have tabled more than 800 afterthoughts. If the Government are rethinking at this stage, it indicates that the thinking process at an earlier stage was not satisfactory—we are effectively dealing with a new Bill. The strongest critics of the Bill were not members of the Standing Committee, so they were unable to table amendments in Committee. The Bill has not been given the intense scrutiny that it needs.
	The Bill is effectively a new Bill, because there are so many amendments. My head bursts when I read through the amendments. Some hon. Members are accountants and auditors, and they cluck appreciatively when they read such amendments, but my head is strained by trying to digest them. If I were to read out the amendments, it would take three days. There is just not time for us to deal with all the inherent complexities and all the changes that need to be made from any point of view that is either critical of the way in which companies are run or deferential to the vested interests that deal with those companies.
	We need more time if we are to produce a Bill that will endure. After all, the Government have had nine years in which to introduce this Bill. A new companies Act was necessary to change the balance when we first came to office. Now, after nine years of gestation, we have a Bill that requires, at this very late stage, 800 amendments that there will be no time to consider. I have tabled, with my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins), several amendments of genius that I would want to discuss in full. Some have been selected, mercifully, while some have not, but there are serious issues to discuss in relation to each one. Having read the selection list, I find that all my amendments are crammed into Thursday, when we have about 36 groups to deal with. Thursday is going to be hell on the basis of this timetable. I plead for more time while affirming my deference to our Front Bench and to the purposes of this Government whom I so loyalty support.

Douglas Hogg: I very much support what was said by my hon. Friend the Member for Rutland and Melton (Mr. Duncan), by the hon. Member for Cambridge (David Howarth), and by my relatively close neighbour, the hon. Member for Great Grimsby (Mr. Mitchell). What we are doing is profoundly unsatisfactory. This House faces a very large number of amendments, new clauses and new schedules, many of which were tabled very recently within the past few days. There is no point in the Minister's shaking her head in a despairing way—we are despairing of the conduct of Government Front Benchers. The fact that these amendments—hundreds of them—were tabled but two or three days ago means that right hon. and hon. Members cannot form a view as to their merits. Worse than that, neither can the outside interest groups that would wish to make representations to this House. That is wholly wrong.
	The other point to keep in mind is that this Report stage is the first occasion on which the House as a whole, as distinct from the Committee, can consider the detail of the Bill. The effect of a timetabling motion of this kind is to preclude the House from doing so. Because of the way in which the knives will fall, a whole range of important issues will not be addressed or examined, far less voted upon.
	We are doing this far too often, and there are examples of the chaos that results. I often have to handle the Criminal Justice Act 2003 in the courts, as does my hon. and learned Friend the Member for Harborough (Mr. Garnier). We know full well that the timetabling motions with regard to that Act produced one of the worst criminal justice Acts that the courts have ever had to deal with. We are now doing the same thing, but in this case it is worse because we have not only a new Bill but the new companies legislation incorporated into it.

Douglas Hogg: I agree entirely with my hon. and learned Friend. His comments lead to another point: we could use the carry-over procedure. The Bill is important, so let us use the carry-over procedure. We were willing to use it for the Corporate Manslaughter Bill last week. The measure that we are considering is as difficult, if not more so. Let us take time over it.
	I introduced many Bills when I was a Minister. I suppose that I handled six, seven, eight or nine Bills on the Floor of the House or in Committee. I am therefore well versed in their conduct. As hon. Members know, I am not an especially modest man but they will accept that it was my considered view that a Minister had to master the detail of a Bill as well as any official; otherwise, the Minister cannot overrule the officials or set policy. Ministers cannot handle Bills that are much more than 30 clauses to that standard of excellence. Bills that are much longer need teams of Ministers to deal with them.
	It is inevitable that Ministers will not understand what they are doing when measures are the size of the Companies Bill. They are thus wholly in the hands of their officials. That is not a proper exercise. Moreover, it makes timetabling even more inappropriate. Any honest and sensible Member knows full well that it is a disgrace and that we are not doing our duty, and will vote against the timetable motion, as against many others.
	I am now looking at the Conservative Whip. When we get into office, he and the Front-Bench team will find people such as me unwilling to support timetable motions. The Conservative party, when in office, had better not ask people like me to vote for such motions because, in general, we will vote against them.

Edward Garnier: I agree wholeheartedly with the comments of my hon. Friend the Member for Grantham and Stamford (Mr. Davies). As my right hon. and learned Friend the Member for Sleaford and North Hykeham (Mr. Hogg) said, a Bill as big as this—it is bigger than the Leicestershire telephone book— [Interruption] It is also bigger than the Rutland telephone book. I shall not go into the other variations. My right hon. and learned Friend was entirely right that a Bill of this size needs a team of Ministers to achieve mastery of it. Perhaps what upset me most was the attitude that the Minister displayed to the House when she moved this short motion, as she did not have mastery of that, let alone of the content of the Bill. She did not even know how many schedules and amendments we would have to discuss in little eight-minute sections. Of course, we will not have an eight-minute section to discuss many of these topics.
	The Government do not care. After nine years of this appalling Administration, we are all used to their incompetence, intellectual dishonesty and political shenanigans. What we cannot tolerate, however, and what I find so offensive, is the smugness with which they overlay their incompetence, stupidity and political and intellectual dishonesty. If the Minister thinks that it is appropriate for her, as a Minister of the Crown, to defend her Government's policy and to explain the detail of the Bill in the way that she just has, she ought to be ashamed of herself and of her Government.
	This Bill is one of the most important pieces of legislation to come before this or possibly any other Parliament, as my hon. Friend the Member for Rutland and Melton (Mr. Duncan), the shadow Secretary of State, said. The Government's treatment of it is offensive—to me as an individual, although my personal feelings do not matter, but also to Parliament and, more importantly, to the people who sent us here. Their approach speaks volumes about their attitude to the electorate and to good governance. The sooner we get rid of this lot, the better—[ Interruption.] My words appear witty and amusing to the hon. Member for Burnley (Kitty Ussher), the Minister's Parliamentary Private Secretary, who clearly likes to poke fun at people like me. I must seem an easy joke as I stand here in my pinstriped suit and make remarks about the Government's conduct. However, I am concerned about the calibre of the Government and of this Bill, and about the attitude displayed by the Minister and her hon. Friends to the people of this country. I warn them that they ignore our people at their peril, as the electorate will grab the Government firmly by the throat and remove them from office.

Richard Shepherd: I can well understand why the Government have tabled this motion: it has become a habit for them to assume that Parliament need no longer scrutinise legislation. The second reason why I understand this was also given by my right hon. and learned Friend the Member for Sleaford and North Hykeham (Mr. Hogg), namely, that Ministers are not masters of their briefs in such an extensive Bill as this.
	The House recognises the importance of this legislation, as we have heard from hon. Members on both sides. We recognise that it is a landmark. It is a consolidation measure, but it also covers new ground. The Government have tabled almost 1,000 amendments, and no doubt the Minister will have taken advice from her civil servants on what will actually be constituted by the proposed changes. However, the Government will not allow the House to find a rhythm for the consideration of a landmark piece of legislation that will guide company law. It will directly affect those who run companies, as well as those who are employed by them. It is a major ethical statement of what we regard as appropriate law. That the Minister has come forward with a timetable motion such as this shows a contempt for the House and a failure to understand the central importance of the authority of Parliament.
	I am terrified that a misjudged clause in the Bill could have ramifications right across the business community. That is why Ministers should listen carefully to the people who represent businesses and to those who work in them. They should give consideration to sensible proposals such as that to allow roll-over in these circumstances, so as to permit proper consideration of these matters and to give the Opposition and other Members with opinions the opportunity to comment. As is my tradition, I shall oppose all guillotine motions whenever I am able to do so. This motion traduces the proper purpose of the House.

Jonathan Djanogly: I thank the Minister for giving way. The reason that I spoke for two hours on the takeover panel is that it is an important aspect of corporate life in this country, but perhaps she fails to appreciate that. We needed to speak about it. She mentioned the number of people in Committee, but I must remind her that it was during Committee that, for the first time in history, the Opposition defeated a programme motion because the Minister could not get her own people there.

It being forty-five minutes after commencement of proceedings on the motion, Mr. Deputy Speaker  put forthwith the Question already proposed from the Chair, pursuant to Standing Order No. 83A(8).
	 The House divided: Ayes 303, Noes 231.

Patrick Hall: That is entirely up to the official Opposition, as my right hon. Friend knows.
	I was reflecting on the fact that there is a great deal of interest in these matters outside this place. Therefore, although we should not judge the quality of an issue on the size of the postbag on it, it is right that we recognise the scale of interest and concern and reflect that on the Floor of the House on Report, as we did in Committee.
	I therefore reiterate my welcome for the progress that the Government have made—and widely supported elsewhere—in respect of this first-ever statement in statute that company directors, in fulfilling their primary duty to promote the interests
	"of the company for the benefit of its members"
	should have regard to the six factors listed in clause 173 and new clause 4. Those factors include
	"the interests of the company's employees"
	and
	"the impact of the company's operations on the community and the environment".
	That is the first ever codification, and placement in statute, of duties around the concept of corporate social responsibility. That is, indeed, progress.
	It would be remiss of us, however, not to take this opportunity on Report to seek to ensure that what we end up with is the best outcome—one that is pro-business and at the same time socially and environmentally responsible. New clause 4 follows clause 173 closely, but substitutes "have regard...to" with "must endeavour to". The reason for that is clear. An examination of the "Shorter Oxford English Dictionary" reveals that "endeavour" means
	"To exert oneself...To try"
	or
	"make an effort for a specified object; to attempt strenuously"
	to do something. On the other hand, to have regard to something is to give attention or consideration to it. Whereas "have regard...to" is a subjective test—a director can say that he or she has thought about the six secondary duties listed in clause 173 and new clause 4, and may or may not have done more about them—"must endeavour to" is an objective test, requiring some evidence of having sought to abide by those duties before deciding whether it was in the best interests of the company so to do.

Patrick Hall: That is an important point, and good businesses do approach such matters in that way. What we are trying to create through the Bill, perhaps as amended, is a level playing field to ensure that they are not disadvantaged for giving emphasis to these important matters.
	I emphasise that what I am proposing would not change the current position that the overriding duty is to promote the success of the company, but it places the six duties that articulate the essence of enlightened shareholder value at the heart of company law, which has never been the case before. The measure would thus place those desirable objectives firmly on the agenda. I am not convinced that merely having regard to them would suffice, but we shall see.
	Being positive about the duties is a pro-business position that helps to create a level playing field underpinning the good practice to which the hon. Member for Angus (Mr. Weir) referred. There is much good practice around, so why not support it in company law? Good companies already do many of the things listed in clause 173, so if those duties are set out in law, and especially if they are strengthened as proposed in new clause 4, it will encourage directors to be proactive, rather than passive, about the long-term impact of their business operations on employees, communities, suppliers and the environment. That would support directors who provide the leadership to take such a route, and why should that not be so? Who would not want it to be so? I suggest that they would be the directors who are irresponsible, short-sighted and too lacking in imagination to see the business case for a more progressive approach.
	Much was made in Committee by several hon. Members who suggested that the position I am advancing would open opportunities for litigation and thus increase insurance costs, and they will be able to make their points today. However, the hon. Member for Cambridge (David Howarth) pointed out several times in Committee that suing a director or a board for not fulfilling all or some of the additional six secondary duties will be limited to few classes of people: the board as a whole, a super-majority of shareholders, liquidators acting on behalf of an insolvent company and a new board during a takeover. A minority of shareholders could bring a derivative action, although the Bill closes that option to a very limited number of cases because such action would have to be subject to ratification by the majority of shareholders. However, we should not forget that none of those classes of people could sue for a loss to the company unless they could demonstrate that there was a loss due solely to a breach of one or more of the six duties.
	When applying any of the duties that we care to think of—whether they are the six secondary duties listed in clause 173, the other seven outlined as general duties in chapter 2 of part 10, or several in an amazing list of 640 or so duties, the existence of which the hon. Member for Huntingdon (Mr. Djanogly) repeatedly mentioned in Committee—directors are expected to act in good faith, to exercise reasonable care, skill and diligence, and to do what is most likely to promote the success of the company for the benefit of its members as a whole. Suing a company director is difficult enough already, so attacking new clause 4 on the basis that it would make such action more likely is not a credible argument. On the contrary—I accept that this is at the margins—the measure would help to protect directors who took responsible and long-term decisions and strengthen the hand of shareholders who wished to challenge directors who did not do that. The power to challenge such directors would come not from new clause 4 or clause 173, but elsewhere, because it is already well established in law.

Jonathan Djanogly: The hon. Gentleman will appreciate that businesses are worried that if they are to be able to show that they have taken notice of the items, they will have to set up processes, introduce new sorts of board minutes and effectively go through all the individual requirements, which will lead to more box-ticking and administration.

Jonathan Djanogly: I thank the hon. Gentleman for giving me the opportunity to explain what he has misconstrued. I mentioned that those were objects of fashion and I repeat that statement. I say that not for the reasons that he gave, but because there are some 650 common law duties, of which these six are part, and the Government have cherry-picked certain duties that they want to put into the Bill. All the duties are equally relevant. I am not saying that the six that the Government have chosen are not relevant; I am saying that they should not be codified.

Jonathan Djanogly: I declare my interests as they appear in the Register of Members' Interests. After seven years of consultation and 10 months of Bill process, involving several thousand amendments—650 of them tabled by the Government in the past week—we near the end of the process on the largest Bill in history. One issue that is directly relevant to every group of amendments to be discussed on Report is the timing of implementation. There is much speculation and there are many rumours going round the City and the law firms on that point. It would be most helpful if the Minister could set out the position when the opportunity arises for her to do so.
	I will speak to our amendments Nos. 392 to 398. As the hon. Member for Bedford (Patrick Hall) said, the issue of directors' duties to promote the success of the company as set out in clause 173 is the area of the Bill that has probably courted the most controversy. I do not believe that the Government really wanted that when they set out with the Bill, but gradually, possibly over seven years of consultation, they have dug themselves into something of a hole on these provisions, from which they are now finding it difficult to extract themselves. We have seen that in the conflicting messages from Ministers since the Committee. It was interesting to hear the hon. Gentleman say that we are sending out conflicting messages. I suggest that quite the opposite is the case.
	For example, in an article in the  Financial Times of 26 September, the Minister, then at the Labour party conference, was reported as saying that the Government were listening to lobbyists and could still use regulations to increase reporting and behavioural requirements for directors, once the Bill was
	"in force and people start understanding it".
	On the other hand, the Secretary of State was reported as saying, within 24 hours of the Minister of State's remarks, that the Government did not intend to introduce any changes on Third Reading. I am therefore slightly confused, not least because, without advising us, the Minister tabled amendments to the provisions on accounts and reports, which we are to discuss tomorrow.
	The plot thickens yet more. The Minister needs to advise the House whether there is a secret Labour, or perhaps trade union, agenda, or whether two Department of Trade and Industry Ministers are pulling in different directions. Of course, new clause 4, tabled by Labour Back Benchers, creates a third position. Business expects a clear direction from the Government, but in this respect they are not getting it.

Jonathan Djanogly: To put it briefly, we have tabled the amendment because the Conservative party believes that small parties are more susceptible to regulation and that their individual circumstances should be taken into account.
	In our amendments, we are attempting to take a constructive approach to improving the provisions, as the hon. Member for Bedford acknowledged. The amendments therefore take account of the still widespread concerns throughout the legal and business communities. We do not feel that they would weaken the Government's position—that is not our intention.
	Part 10 and clause 173 are designed to codify existing, mainly common law, principles relating to the responsibilities of directors. That has led to vociferous and growing complaints from across the legal and business communities that those provisions in particular could cause company law to be altered dramatically for the worse. Historically, judges have had the discretion to deal with complicated issues relating to directors' duties on a case-by-case basis; that system has been adaptable and effective in dealing with cases that are often complicated and highly technical. The existing duties found in common law rules and equitable principles which have been built up over the years in the courts are now to be replaced by the statutory statement in part 10. A flexible system is to be replaced by an inflexible one.
	On the one hand, the Government have said that there will be no change in the common law position; yet, on the other hand, they have introduced the concept of enlightened shareholder value, which all legal experts agree will alter the common law position of acting in the best interests of the company. We believe that there is a fundamental gap in the Government's train of thought: either they are introducing a new concept, enlightened shareholder value, which is an extension of the common law, or they are simply codifying the existing common law. The Minister has still not made clear which course the Government are taking. According to the many interested parties whom we have consulted on the Bill, the position seems to be clear: if the audience is business-oriented, the Government message is, "Don't worry—nothing is going to change. This is only a restatement of the existing common law position."

John Redwood: I remind the House that I have declared my interest as a company director in the register.
	Taking for an example the part of the clause on the environment, does my hon. Friend think that it means that a company director would have to do more than simply comply with all existing environmental and planning laws to show that he has satisfied that requirement?

Jonathan Djanogly: My right hon. Friend makes an important point. It can be argued that the law would not be expanded. However, companies have told us that dealing with it on a daily basis will involve going through more red tape, setting out the steps that they take when reaching decisions in a way that has not previously been thought to be necessary. They regard that as otiose. Indeed, the Minister and I attended a conference in the City at which a counsel for a very large public company made exactly that point. Companies are concerned by the proposal.

Jonathan Djanogly: My right hon. Friend puts his point strongly. As I said at the outset, the Government are trying to dig themselves out of a hole by means of the clause. There is no point in the Minister asking me "yes or no" questions because the matter is rather more complicated and sophisticated than that. I shall come to the Conservatives' viewpoint in terms of corporate social responsibility, if she will only give me a chance.
	If we look at where the pressures are coming from, we can see from its briefings that the TUC supports codification and makes an explicit link between the success of the company, the interests of employees and the other matters for consideration listed in the clause, and makes it clear that directors should have regard to these matters. The TUC sees that link as a significant step and wants clear and comprehensive guidance and reporting, which it sees as contributing to raising standards of corporate behaviour. How does a significant step not constitute a change? The Minister must come to terms with that anomaly in her position.
	Our party supports many of the good intentions voiced by the Government when they talk about enlightened shareholder value. We have no problem with any of the individual items listed in clause 173, as I made clear to the hon. Member for Bedford in my intervention. For the most part, they exist as common law responsibilities in current law. However, in the context of sound law, these intentions can easily slip into platitudes, and that view is reflected by many commentators on the Bill.
	The Association of British Insurers supports the enlightened shareholder value approach, but says:
	"We have nevertheless had concerns that codification might lead to a compliance driven approach to the exercise of directors' duties rather than one based on the making of good-faith judgements. This could lead directors to take expensive and time-consuming legal advice, impair efficient decision making and add an unnecessary layer of bureaucracy to board practices. Codification of directors' duties would not then achieve its goal of greater transparency and accountability, but instead create new uncertainties and larger administrative burden."
	The Law Society says that it
	"doubts that the savings for business which the government anticipates will be achieved. On the contrary, the new provisions on directors' duties will result in new uncertainty, increased legal costs and additional bureaucracy...In particular, the Law Society believes that the new code is inflexible—at present, the courts have considerable freedom to develop the law on directors' duties to suit changing needs and expectations and in practice the code will not be more accessible than common law rules, as its meaning will over time become less and less clear to a reader who does not also understand how it has been interpreted and applied by the courts."
	It is very clear that while the Government protest that they are not changing the common law position, they are doing just that—a course that will lead only to confusion where there should be clarity. But also, and in some ways even less helpfully, the clause could impede the future development of the common law, which is a very developed area in this country compared with many other jurisdictions.
	The list of the six factors to which a director must have regard as set out in clause 173 seems arbitrary. It has been calculated that some 650 common law duties of directors have been laid down through the common law and various statutes over the years, and in Committee, as the hon. Member for Bedford mentioned, I set out quite a number of those. Why have the six in the Bill been deemed more important than all of the others? We recognise that putting the duties into one format would give clarity to company directors. That is why we have supported, in amendment No. 398, the Law Society's proposal to publish a non-statutory guide to directors' duties.

Jonathan Djanogly: I think that I gave the Minister a list of about 45 in Committee and I will leave it at that.
	We are not arguing here that all directors' common law and statutory duties should be put into statute. That would be nonsensical, particularly as the common law duties are being advanced all the time. However, amendments Nos. 393 and 395 would oblige company directors to give consideration to all other common law duties of directors. A non-statutory guide, as provided for in amendment No. 398, could then give directors some guidance as to what these duties are without the guidance being enshrined in statute.
	A May 2006  Financial Times lead article entitled "A missed opportunity" says:
	"The stated aim was to make directors' duties clearer and more up-to-date. The reality is a confused list that mixes platitudes with necessary duties...the Government's approach betrays an underlying mistrust of business."
	This area has also prompted serious concerns from the legal profession. A host—I say a host—of major corporate law firms, whose job it will be to interpret the clause, have told us that the matters listed in clause 173(1)(a) to (f) make a rigid list of factors that may artificially constrain the decision-making processes and provide inappropriate challenges to the way in which directors have exercised their discretion. The list of factors set out in clause 173(1) is applicable to all types and sizes of company, but the listed matters may not be appropriate for directors to take the best decision in all circumstances. The director of a major plc and the sole director of a corner shop will not take into account the same factors when they make important decisions, and the judgment of directors is at real risk of becoming artificially fettered by their having to tick box through a checklist of factors that may have no relevance to what their company does.
	The Law Society has pointed out that the list of factors in clause 173(1) which a director must consider raises the possibility that the courts will be given the power to review business decisions made by directors in good faith, thereby undermining the well-established business judgment rule. That could adversely affect the management of companies and be a significant burden for businesses in terms of both time and cost, because businesses would have to examine those factors before taking any decision. That is why we have tabled amendment No. 393 on the recommendation of the Law Society, the CBI and the Association of British Insurers. It would require directors to take into account all those factors only if those factors are relevant to the matter under consideration and if it is reasonably practicable to do so, which would qualify the requirement to take all the factors into account all the time.
	Amendment No. 788 would tie clause 173 to large companies, relieving smaller companies of extra bureaucracy and red tape.
	The introduction of factors to which directors are required to have regard in discharging their duty under clause 173 may also create new uncertainties for third parties. That is because a transaction entered into with a third party who has notice of a breach of a fiduciary duty by one or more of the directors relating to the transaction is voidable at the option of the company, which may result in third parties seeking an assurance that directors have complied with that duty and have had regard to the factors listed in clause 173.
	We also believe that directors will be more exposed to actions for breach of duty, in particular following a takeover or in the event of a company becoming insolvent when there is new management, who may want to recoup losses from whatever source is available, including previous directors. An increase in the risk of personal liability is likely to discourage many individuals from taking up directorships of UK-incorporated companies and is also likely to discourage those who take up directorships from taking decisions which might give rise to personal liability in the future, if those decisions ultimately turn out to be detrimental to the company.

David Howarth: The hon. Member for Bedford (Patrick Hall) has already raised those accusations. The question is what loss can a company suffer as a consequence of the breach of those duties which would be actionable in the circumstance described by the hon. Member for Huntingdon (Mr. Djanogly). I remind him how the law works: it must be the company's loss, not somebody else's.

Jonathan Djanogly: With respect, the hon. Member for Bedford was not supporting my point. The hon. Member for Cambridge (David Howarth) has missed the point that clause 173 must be taken with other provisions in the Bill in order for one to conclude that directors may have greater liabilities. If one puts those provisions together, one comes up with that answer, which does not allay my fears.
	Amendment No. 394 would require directors to consider only those factors which they, in good faith, considered relevant to the matter in question. Provided that they acted in good faith, their decision on the relevance of a particular factor could not be called into question by the courts, except to the extent that the directors acted in breach of their duty to exercise reasonable care, skill and diligence.
	Concerns have also been raised that the list does not make clear the ranking of the factors. That is why we have tabled amendment No. 396, which states that no one duty should take precedence over another.
	The fundamental problem with clause 173 is that it clouds the paramount duty of directors to consider the best interest of the company—I do not think that the hon. Member for Bedford was saying that that should not be the paramount duty. This is the kernel of the issue: as I have said, the other duties are all important, but the ultimate responsibility of a director is to the best interest of their company, and from that fundamental duty all other responsibilities spring. By clouding that duty, the Government will do a great disservice to company law and company directors for a long time to come. That is why we have tabled amendment No. 397, which states that
	"The duty to promote the success of the company shall be paramount."
	The hon. Member for Bedford promoted his concept of corporate social responsibility. Let me spend a little time addressing his concerns. CSR is now taken more or less seriously by all the larger companies based in this country; it is generally agreed that it is only good business sense to do so. My party, too, has shown how highly it values CSR. We in the Conservative party support social responsibility in companies. We believe that companies, in preference to the state, can and should be a positive driver of environmental and social change. In fact, we have placed increased corporate responsibility at the top of our agenda, even in being what my right hon. Friend the Member for Witney (Mr. Cameron) called a "critical friend" to big business when necessary. No Member, certainly no Conservative Member, would dispute that increased CSR is a good thing and a developing area.
	However, we argue that this Bill is not the place in which to place unnecessary non-specific mandatory burdens on company directors of all UK companies. That will not only lead to uncertainty and the fear of litigation but set back an agenda that my party supports. The environmental agenda, which was mentioned by my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer), is of prime importance to Conservatives; that is why we say that we need a climate change Bill. However, that is different from making broad statements in a very precise Bill, which will lead to more tick-box exercises by companies with little gain to the environment. There are many campaigns to improve corporate environmental and social involvement across the world—indeed, sometimes across companies.
	The problem is that very few of the companies involved will be affected by the Bill, because most such multinational companies are non-UK companies. Let me be frank: we can make our company law regime as rigid as we wish, but it will not matter a jot to most of the companies that hon. Members probably have in mind and will therefore not go far in helping to further their individual campaigns. Most major multinational companies that are UK-listed already take CSR very seriously and spend considerable amounts of time and money on it. We can all too easily ignore the fact that many publicly listed companies sell themselves on their CSR reputation. Furthermore, increasing numbers of shareholders are realising that they can exert a positive influence on the companies that they ultimately control, and we wish to encourage that. The rise of "green" and "ethical" investment funds operated by most of the major fund managers has made them clearly aware of CSR, and it is now simply bad business for a major PLC to ignore it.
	The vast majority of companies affected by the Bill—perhaps 99 per cent.—are small and medium-sized companies. Those companies, which are rarely the target of environmental or social campaigns, already have enough troubles without being asked to jump through a series of statutory hoops. Because the Bill deals with UK companies, it does not have the framework to deal with the issues on which activists have been campaigning. It treats the corner shop in the same way as the multinational. It is the wrong place to be dealing with these issues, important as they may be. That is why we tabled amendment No. 392, which proposes that duties shall be appropriate to the size of the company, and amendment No. 788, which would exclude small and medium-sized companies from the provisions.
	Many organisations have taken an active interest in the Bill, and I have met several of them. In Committee, the hon. Member for Bedford stated that a voluntary approach would not work and referred to examples of corporate, social and environmental abuse. He hoped that providing legislation on that would raise the bar for CSR. However, the Bill as drafted will merely provide vague language to govern directors and serve to confuse businesses, particularly small and medium-sized companies. That is why we tabled an amendment that would limit it to larger companies.
	That said, we believe that the UK should be the world leader in promoting good CSR. Where UK companies lead, Conservatives believe that other companies will follow. However, the answer to leading the way in CSR is not to impose a heavy regulatory burden on our companies but to encourage investors to take into account a company's record on CSR and to encourage all the companies in the UK to understand that being socially responsible is in the best interests of the company. Governments certainly have a role to play in this; indeed, we often forget the need to use carrots for best practice as much as threatening the stick of regulation. I have no doubt that CSR will also be moved ahead by market forces. Informed consumers voting with their feet will always be a more effective way of getting companies to take up their CSR responsibility than regulation will ever be.

Sarah McCarthy-Fry: Unlike many hon. Members present, I was not fortunate enough to serve on the Standing Committee, but I should like to speak to new clause 4 and amendment No. 2, tabled by my hon. Friend the Member for Bedford (Patrick Hall) and myself.
	Just over a year ago, I tabled an early-day motion, which was signed by more than 220 hon. Members, setting out why company law needed to be modernised for the 21st century. I warmly welcome the Bill, particularly the fact that it clearly states the Government's position with regard to enlightened shareholder value. That clarity seems to be sadly missing from the Conservatives' approach; I am sure that that will not go unnoticed.
	I tabled the amendments in the hope that we could go a little further. New clause 4 proposes a positive duty for company directors to take responsibility for the impacts and interests of their companies in the round by endeavouring to minimise adverse impacts on the community and the environment, promoting the interests of employees, and maintaining high ethical and business standards. That is merely what we have a right to expect of our companies as responsible members of the global community. Modernising company directors' duties in that way would give them a clear incentive proactively to consider the impact of their business operations on their employees and suppliers and on the companies and environment they rely on. By empowering directors to take their responsibilities seriously, we would give room for our companies' huge energy and innovation in terms of delivering unprecedented social and environmental benefits. By making it a clear and positive duty, we would provide an incentive for those directors who do not take their responsibilities seriously to think again.
	I am a Labour and Co-operative MP. For the co-operative movement, corporate social responsibility is integral to doing business, and always has been. However, it should not only be the concern of co-operatives and social enterprises. It is in the long-term interests of the economy and of society as a whole—and in the interests of the long-term success of companies themselves—that all businesses operate in a responsible and sustainable way.
	I support the efforts that the Government have made to encourage responsible business practices, including through the promotion of business education and best practice in CSR. The Bill, particularly through the codification of directors' duties, addresses a fundamental premise. Should a company operate only in the interests of its members—its shareholders—or should it have a wider remit and operate in the interests of stakeholders? If we accept that, as I do, how should we manage it—by legislation, regulation or voluntary code? That goes to the heart of the matter. In my view, as I said on Second Reading, it is no longer acceptable for financial profit to be the only motivating factor in doing business. Many businesses already acknowledge a wider responsibility to consider the interests of employees and the impacts on the local community of doing business—the essence of what we say is CSR.
	Regrettably, though, despite an increasing number of commitments by companies to a more responsible way of doing business, we have evidence that there are still far too many failures to deliver. As my hon. Friend the Member for Bedford noted, the amendment is supported by members of the Trade Justice Movement and the Corporate Responsibility Coalition. Like most hon. Members here, I have received an enormous number of postcards, letters and representations on this. Many of these organisations have compiled large bodies of evidence detailing the failure of a purely voluntary approach to CSR. When I spoke back in June on Second Reading, I said that  The Times had uncovered allegations that Portuguese children as young as 11 were being paid just $20 a day to make shoes for the clothing chain, Zara. It is therefore with a sense of déjà vu, as well as concern, that I note Channel 4's recent story alleging that factories in Bangladesh that produce clothing for Tesco have employed children as young as 12. ActionAid has also exposed Tesco for paying poverty wages and failing to observe basic health and safety standards in the use of pesticides.
	Tesco is a market leader—a competitive business that recently announced record profits. Many consider it to be a leader in corporate social responsibility, but it obviously continues to fail to deliver that completely. Tesco is not a lone case. Shell is another successful company, which has been at the forefront of promoting the idea of corporate social responsibility, but the social and environmental problems that its activities in Nigeria caused first came to the world's attention in 1995. Christian Aid and Friends of the Earth recently produced reports that show that communities and the environment in the Niger delta suffer because of oil spills, gas flaring and other activities that Shell causes.

Sarah McCarthy-Fry: I am more than happy to praise companies that implement corporate social responsibility. I was in Ghana recently and I met representatives of an organisation called the Blue Skies company, which operates the highest standards for its employees, provides a high quality product and looks after the interests of the local community.
	The highest profile companies are the most easily monitored by campaigning organisations such as the Trade Justice Movement, Christian Aid and Friends of the Earth, and the media. They, therefore, feel the pressure to improve most keenly. However, thousands of British companies have a multinational impact—far too many for the non-governmental organisations to police, as some suggest as a solution. We need a change in the law and the Bill gives us an opportunity to do that.

David Howarth: There are often examples, which we have discussed on the Floor of the House, of a company that thinks that the way to maximise profits is to close down one part of its operation. The hon. Gentleman's point is not therefore an objection. I thought that he was going to say that his new clause uses the words "endeavour to minimise". I have been thinking about that point over the past few months. Technically, it is possible, I suppose, to endeavour to minimise the adverse impact on both the environment and the community, to fail to do both, but then to argue that one has not breached the duty because one has tried to minimise both but failed. That seems a terrible way to draft a duty of directors—it is saying that if they apparently fail to fulfil that duty, they will be let off, because they only have to try to fulfil it. The better, more positive and encouraging way to do it seems to be as the Government have proposed—to say that the director must "have regard" to both the environment and the impact on the community. I am therefore still worried about the contradictory duties point.
	My second objection to new clause 4, which is the reason I prefer the Government's approach, is that it raises false expectations. We have already heard two very different points of view from the hon. Member for Bedford (Patrick Hall) and the hon. Member for Portsmouth, North (Sarah McCarthy-Fry) with regard to whether the new clause promoted a pluralist view of company law or was sticking to the Government line of enlightened shareholder value. The hon. Gentleman was correct that the new clause does not abandon the Government's basic stance of enlightened shareholder value. The hon. Lady, perhaps talking directly to the campaign groups, was saying that it was an attempt to move the pluralist view on. It cannot do both.
	An underlying problem is what company directors' duties are under the enlightened shareholder value system. It is important to remind ourselves that as long as that system is in place—and the new clause does not challenge that system—the directors' duties are to the company, not to anyone else. The hon. Member for Bedford used that point to reinforce his argument, which I think is correct, that there is not much risk of litigation under the new clause, or under clause 173. Who can sue as the company in such a situation? Normally, the board of directors represents the company, and decides whether to sue. If not the board, in some cases, a majority of shareholders—usually, a super majority of 75 per cent.—can order the company to sue. As he said, rare derivative actions will occasionally occur, which we shall discuss later. The scope for using such derivative actions, however, is limited. More likely, as the hon. Member for Huntingdon mentioned, is action by takeover bidders, administrators or liquidators on behalf of creditors after the company has gone insolvent. Those are the only people likely to be using directors' duties litigiously. Are those people—institutional investors, commercial creditors and boards of directors—likely to put forward, and implement through litigation, a strategy based on pluralism, which is more concerned with the environment and the community than with the company's profits? I dare to suggest that they will not enforce those directors' duties in that direction.
	Finally, there is a danger that new clause 4 works against the interests of existing directors who are concerned with corporate social responsibility. The reason for that is that, in practice, those who are vulnerable to being sued for breach of directors' duties are not those who act only according to the narrow interests of the company—its profits. Instead, they are those who attempt to look more broadly, taking into account the environment and the wider community of employees. On a takeover or liquidation, there is a danger that those who act for the creditors or new owners will sue the old directors for failing to make enough money, and for taking other interests into account. In a way, that is an answer to the question asked by the right hon. Member for Wokingham (Mr. Redwood). Clause 173 achieves extra protection for directors who have had regard to environmental matters and the community, and puts them in a position where they cannot be sued.
	We all have experience of that. The existing law mentions the interests of employees, and there have been examples of directors being sued for taking into account the interests of employees, failing to sell the business to the highest bidder, and instead selling it to a bidder whom they thought would carry on the business to the benefit of employees' jobs, not asset-strip the company. That is a practical matter, and whereas clause 173 offers extra protection, I fear that the new clause reduces that protection.

David Howarth: The example that occurred in practice was precisely an attempt to sue a director for selling a business at less than maximum value. In that example, a director needs the protection of the new law and is not threatened by it at all. My point was therefore that directors are not threatened by the new law, as the hon. Member for Huntingdon was saying, because the only examples of a loss would be where a company could be said to have made a financial loss as a result of taking into account wider interests. In those circumstances, and only in that direction, directors might be vulnerable to personal actions. That is why I said in Committee that clause 173 was a deregulatory clause that protects directors from actions that might otherwise be brought against them.
	A problem with the new clause is that if the hon. Member for Bedford is right that the word "endeavour" makes it harder for directors to fulfil their duty than the words "have regard", in a way, that reduces directors' protection, as they will be less likely to be able to argue that they have fulfilled their duties under the law and cannot therefore be sued for what they did. I fear that that is an unintended effect of the new clause as drafted. The Government's existing proposal, because it might be slightly looser, is in practice more helpful for directors who want to do the right thing
	I now turn to the amendments tabled by the hon. Member for Huntingdon. Some are slightly puzzling, and one wonders why they are needed. Amendments Nos. 393 and 394 use subjective words and phrases such as "in good faith" or "relevant", but that subjectivity is already to be found in clause 173. In fact, the House of Lords changed the original draft to ensure that that subjectivity suffuses the clause as a whole, and one of the arguments about new clause 4 is that it renders part of clause 173 objective rather than subjective. Amendments Nos. 393 and 394 would not add anything to the Bill. They are merely confusing, as they throw into doubt how the start of clause 173 should be read.
	Similarly, why is amendment No. 392 needed? It talks about requiring directors to act appropriately for the size of a company, but that is implied in the duty already set out in clause 173, where directors are required to act in the way that they think would promote a company's success. If amendment No. 392 did serve to reduce the scope of the duty placed on directors, it would also have the unfortunate effect of reducing the scope of the protection to them offered by new clause 4, and so could be said to be objectionable on those grounds.
	Amendment No. 395 deals with common law duties. The hon. Member for Huntingdon has said in the past that there are 640 or 650 of them, but there is some confusion in his approach. I have done some digging and discovered that many are simply examples of duties that are in the Bill, such as the duties not to exceed the powers of the company, or to act in accordance with the company's constitution, or to act with skill and care, and so on. Other examples are not, in the strict sense, directors' duties at all, as they are not duties to the company but duties to someone else, as set out in the wider environmental, employment or other law. The company law review team and the Law Commission have put years of work into these matters, and so it would be surprising for them to get the law as badly wrong as the hon. Member for Huntingdon suggests.
	Amendment No. 788 worries me a bit, as it proposes that the
	"duties implied by this section shall not apply to small and medium sized companies."
	First, I do not know what the word "implied" means in that context. It would usually refer to duties not mentioned elsewhere in the clause, but in this case it must refer to duties that are not mentioned but implied by the clause. I am not at all clear what is meant: if the amendment refers to all the duties in the clause, why does not the hon. Member for Huntingdon want the fundamental duty to promote the success of the company to apply to SMEs? That would make no sense, as that duty must apply to companies of all sizes.
	Perhaps the hon. Member for Huntingdon really means that the wider concerns that follows the words "have regard" in clause 173 should apply only to large companies. If so, the amendment would achieve only a reduction in the protection offered to directors of SMEs against the sort of legal action that I described earlier. I think that those directors of SMEs who follow corporate and social responsibility requirements closely are entitled to the same protection as are directors of large companies. Therefore, I do not understand what amendment No. 788 is getting at. It may be more of a symbolic gesture rather than something that the hon. Gentleman really wants to be agreed to.
	Finally, amendments Nos. 396 and 397 contradict one another, and both cannot be accepted. Amendment No. 396 states that no duty takes precedence over any other, whereas amendment No. 397 states that the duty to "promote success is paramount." Duties are either equal or unequal; they cannot be both. I hope that the hon. Member for Huntingdon is able to choose between the two alternatives that he offers.
	As it stands, and as all speakers have accepted, clause 173 means that the duty to promote the company's success is paramount, so there is no need to add what is proposed in amendment No. 397. The fact that amendment No. 396 would throw that priority into doubt is unfortunate, and I hope that the hon. Member for Huntingdon will not press it to a vote.

Jim Cousins: I shall be brief, and I shall start by speaking about the position adopted by my right hon. Friend the Minister. The right hon. Member for Suffolk, Coastal (Mr. Gummer) suggested that the architecture of clause 173 was an attempt to claw back what was lost when my right hon. Friend the Chancellor ditched the operating and financial review. If that is true, one has to say that she has not done too badly. Many who have attempted similar tasks in the past have not ended so well, as the right hon. Gentleman will admit. If, as he contends, my right hon. Friend has got the Government and the Chancellor out of a hole, she has survived to tell the tale. That puts her in a strong position.
	The hon. Member for Cambridge (David Howarth) was right to say that instead of trying to codify the 650 or so common law rights accumulated since limited liability began, my right hon. Friend the Minister has set out some general principles. That effort is not an aggressive intrusion on the rights of directors, but an attempt to protect them. There is already a problem about the rights of directors and their treatment in the law. For example, the rising liability insurance costs for directors should send a signal to the House that the circumstances that obtain at present need to be set in a proper framework of principle that will protect directors and inform the discharge of their duty.

Jim Cousins: The right hon. Gentleman deserves credit for trying to think clearly. Shortly, he will have to work out whether he should support his party's amendments, and I suspect that that will add to his confusion rather than diminish it.
	New clause 4 takes the principles set out in clause 173 and tries to make them clearer and more specific. The hon. Member for Cambridge drew attention to that part of the new clause that deals with the impact on the environment, but I believe that it has precisely the opposite effect from the one that he set out. The new clause is much clearer about how directors should set out to protect the environment and is much to be preferred. Clause 173 makes a rather loose and general reference to the
	"impact of the company's operations on the community and the environment".
	The form of words proposed by my hon. Friend the Member for Bedford (Patrick Hall) is more specific and provides better guidance. Moreover, his criticism of the Conservative amendments was absolutely correct.
	I hope that the House will recognise that my right hon. Friend the Minister has taken on a difficult and complex matter, in circumstances that the House will agree were less than desirable from her point of view. She has made an excellent job of it. New clause 4 improves on that, and assists her in the work that she has attempted. I hope that the House will support it.

John Gummer: I do not think that producing a measure that is capable of so many different interpretations will solve the problem that has been caused by the Chancellor. I speak as someone who takes a strong view on this matter. I draw hon. Members' attention to my entry in the Register of Members' Interests. I advise a large number of companies on the subject of corporate responsibility. I prefer the term "corporate responsibility" to "corporate social responsibility" because the latter limits the coverage that companies ought to have.
	I am in favour, in principle, of companies having to present to their shareholders a proper account of their activities that covers not only their financial activities, but those that relate to the wider matters of corporate responsibility. I am in favour of that happening because it means that each company can talk about itself in its own way and satisfy those who listen to it in their own way. The trouble with the Minister's proposal is that it is so incomprehensible. Either it means a great deal, as some people say, or it means nothing at all compared with the present legal situation.
	New clause 4, similarly, is being interpreted either as a mere tightening up—a bit of an extension involving better wording—or as a dramatic alteration. I find this difficult to deal with because I, too, have read what the campaigners have written about the new clause. Frankly, if what they say is true, what the proposers of new clause 4 have said is not quite as true. Alternatively, if what the proposers of new clause 4 say is true, it does not quite explain some of the real difficulties that many of us—who are on the same side in terms of what we are trying to do—perceive in new clause 4. The hon. Member for Cambridge (David Howarth) rightly made that point earlier.
	Hon. Members would be wise not to go along with new clause 4, not on the basis that they take a view one way or the other on corporate responsibility or the mechanisms by which we should get companies to take these matters more seriously, but simply because if companies are being asked to do that, they must be clear about what they are expected to do. They must not be presented with wording that will have to be interpreted by the courts.
	One of the problems with the bipartisan approach that we try to take on environmental matters is that we often end up doing nothing. Everyone talks about it and the rhetoric is very good, but in the end nothing is done. The worst thing to do in such circumstances is to produce a measure that the courts are going to have to interpret. That is what worries me about this wording. It has been suggested that we should not be too mean to the Minister about this because everyone else who has tried to do something about it has been sacked. That is not a very good idea, if I may say so. The Minister has moved pretty rapidly from one job to another over the past few years, but that seems to be part of this Government's mechanism of keeping everyone in perpetual motion lest they begin to understand the issues that they are facing and start to worry about the fact that nothing is being done.
	Many of us who are pushing for a climate change Bill believe that we are going to have to do a great deal more, much more precisely and with real regulation that will actually work. If we are going to do that, however, we should not at the same time load people down with vague duties and bits and pieces that the courts will interpret. I would say to the Minister that if the Government are going to introduce the kind of environmental legislation that we desperately need to cut our carbon output and change our carbon footprint, we will have to ask people to do some very tough things. So far, the Government have avoided doing any of that. Instead, they have gone in for a kind of flim-flam. The trouble with this particular flim-flam is that it will have to be interpreted by the courts, and we do not know what the outcome will be. Worse still, decent directors who try to understand this legislation will find themselves at odds with the courts. The Minister has put us in a pretty difficult position already with clause 173. I hope that she will satisfactorily defend it against new clause 4, on the basis that that is even worse, but I do wish that she would get down to some practical, direct and real environmental legislation so that we know where we were, rather than presenting us with these measures as part of a propaganda proposition to try to get the Chancellor off the hook.

Michael Weir: I am pleased to be able to make a short contribution to the debate. I was pleased to hear the hon. Member for Bedford (Patrick Hall) say that his new clause was pro-business. It is important for all of us that our companies should continue to be successful. However, the world is changing and—as the right hon. Member for Suffolk, Coastal (Mr. Gummer) rightly said—we are all now much more concerned about the environment and climate change. Companies are going to have to change along with that.
	The hon. Member for Portsmouth, North (Sarah McCarthy-Fry) made the point that there is a philosophical argument involved. To whom does a company owe a responsibility? Is it, as the existing law states, only to its shareholders? Incidentally, those shareholders tend these days to be other big companies or institutional investors, which creates a kind of circle. That is where the idea of enlightened environmental shareholder action begins to fall down. Other big companies control each big company, so unless all of them have an interest in doing something about the environment, I do not think that we should get very far.
	To whom does a company owe a duty? Traditionally, it has been purely to its shareholders—but in the changing world in which we live, where we need to tackle climate change, companies must also owe a duty to the wider society, as the right hon. Member for Suffolk, Coastal rightly said. New clause 4 would point directors along the route of thinking about their duties towards the community and the environment.

Margaret Hodge: This has been an extremely good debate. I thank Labour Members, especially my hon. Friends the Member for Bedford (Patrick Hall), for Portsmouth, North (Sarah McCarthy-Fry) and for Newcastle upon Tyne, Central (Jim Cousins), for their generous welcome of the provision, and I note their wish that it went a little further. I also appreciate the welcome that the hon. Member for Angus (Mr. Weir) gave the measures. It is a shame that I must once again draw the House's attention to the fact that, although Opposition Members said that they wished to debate the issues in detail, for most of the debate the right hon. Member for Suffolk, Coastal (Mr. Gummer)—I welcome his contribution—has been the only Opposition Member present in the Chamber. There have been more Members from the minority parties than from the Conservative party, even though it was Conservative Members who resisted the programme motion so vigorously.
	Clause 173 heralds and articulates a radical, historic and vital cultural change in the way in which companies conduct their business—a change that the Government enthusiastically promote in the Bill. In the past, business success in the interests of shareholders has been thought to be in conflict with society's aspirations for people who work in the company or in supply chain companies, the long-term well-being of the community and the protection of the environment. The Government challenge that view. We think that the two purposes are complementary, not contradictory.
	We believe that businesses perform better, and are more sustainable in the long term, when they have regard to a wider group of issues in pursuing success. That was the premise behind the contribution made by my hon. Friend the Member for Portsmouth, North. We are not alone in holding that view: a number of Members have said that the best British companies conduct their business responsibly because, having exercised reasonable care and skill, they judge in good faith that that is the best way to promote business success.
	We are backing Britain's businesses, which regard the Bill as the future. Good businesses understand the purpose of good law—and the Bill is good law. We are setting out in legislation a director's duty to her or his company. We are laying out the issues that we expect quoted companies to cover in their business review, and we are ensuring that quoted companies will be held to better account by their shareholders—particularly indirect shareholders, such as those of us who have investments in pension funds or personal equity plans. We are making information more readily available, we are making it easier for indirect shareholders to exercise a vote, and we are ensuring that directors can be held to account for their actions. In doing all those things, we are setting in place a framework—not rigid prescriptive action—that will support companies and enable them to be both successful in business and responsible to their communities and work force. Our new framework is not burdensome, as Opposition Members have suggested, nor is it destructive. It will help to stimulate changes in market behaviour.
	Clause 173 sets out the first part of the framework, codifying in law a director's duties to his or her company. That is simply a common-sense approach that reflects a modern view of the way in which businesses operate in the real world: they interact with customers and suppliers; they make sure that employees are motivated and properly rewarded; and they think about their impact on communities and the environment. They do so at least partly because it makes good business sense.
	Directors' duties evolve as times change and as societal norms are transformed. When I first became involved with concepts of corporate social responsibility some 25 years ago, our main concern was to encourage companies to employ people who suffered discrimination in the labour market on the grounds of their race, gender or sexuality. Today, it is customers who increasingly care about whether employees have been mistreated or whether the environment has been damaged. That is why the sale of Fairtrade and organic products has increased so sharply in recent years.
	I entirely understand and appreciate that some Members want us to go further, but I encourage them to be patient. We have all seen corporate social responsibility develop and evolve over time. Many practices that are initially controversial quickly become common and then widespread. The relationship between business interests and the wider world is changing all the time—I believe for the better. The best way of achieving lasting cultural change is to go with the tide and the broad consensus of opinion.
	New clause 4 would amend the subsection by inserting "endeavour to" in place of "have regard to" and, I am afraid, it would paint the list of factors in more pluralist colours. One of our key aims in the clause is to make the law clearer and more accessible. Directors must be clear about their objective, but the wording of the new clause would point directors towards two different goals. Directors are still required to promote the success of the company for the benefit of its members as a whole, but the new clause would require them to endeavour to promote the interests of the company's employees, too, and to minimise any adverse impact of the company's operations on the community and the environment.
	The Government believe that our enlightened shareholder value approach will be mutually beneficial to business and society. We do not, however, claim that the interests of the company and of its employees will always be identical; regrettably, it will sometimes be necessary, for example, to lay off staff. The drafting of the clause must therefore clearly point directors towards their overarching objective. We have made it clear that clause 173 will make a difference, and a very important difference.
	The words "have regard to"—to help my hon. Friend the Member for Bedford (Patrick Hall)—mean "think about"; they are absolutely not about just ticking boxes. If "thinking about" leads to the conclusion, as we believe it will in many cases, that the proper course is to act positively to achieve the objectives in the clause, that will be what the director's duty is. In other words "have regard to" means "give proper consideration to". I hope that comforts my hon. Friend.
	Consideration of the factors will be an integral part of the duty to promote the success of the company for the benefit of its members as a whole. The clause makes it clear that a director is to have regard to the factors in fulfilling that duty. The decisions taken by a director and the weight given to the factors will continue to be a matter for his good faith judgment. I hope that, on that basis, my hon. Friend will agree to withdraw his new clause.
	Many of the Opposition's amendments were discussed in Committee. In my view, I am afraid that they row back from the good progress that we have made in marrying success for enterprise and business with sustainability and social justice. A lot of people have said, "Stop talking, start acting." The time has come for the Opposition to say whether they mean what they say and to show that in their votes. They do not dare, quite, to oppose us lock, stock and barrel—we will see what happens tonight—because that would unmask their continuing true hostility to the socially and environmentally responsible agenda that we are laying out and that most people in Britain today want. But they are trying in their amendments, which were discussed in Committee, to weaken and neutralise the impact of our proposals on the way in which businesses conduct their activities. I would have greater respect for the Opposition if they were honest about their principles. Do they mean untrammelled, short-term, laissez-faire business behaviour that damages society or not? If not, they should vote with us.
	I know that hon. Members wish to talk about other issues tonight, so I will not deal with all the Opposition amendments in detail. Those hon. Members who are interested in the amendments can look at the record of our Committee proceedings, because most of the issues were dealt with then. I will just say that I do not believe from tonight's debate that Opposition Front Benchers believe in enlightened shareholder value, whereas we do. Everything that they have said continues to suggest that they see business prosperity, caring for the environment and looking after their employees as pointing in different directions. We emphatically do not see it that way. Successful businesses do not see it that way. Successful businesses know that the world has changed and that they need to change with it. They know that the world will change further—and so will they. I hope that, on that basis, the House will agree that clause 173 as it stands is right and should be supported without any of the amendments that we have discussed this afternoon.

David Howarth: Does the hon. Gentleman accept that one of the advantages of amendment No. 402, and one of the reasons I support it, is that it reintroduces into the law the concept of good faith and honesty, which is surprisingly missing from the Government's present draft?

Jonathan Djanogly: The hon. Gentleman makes an important point, which I accept. The Law Society, among others, has pointed out that there is a significant difference between the common law rule on conflicts of interest and the wording of the clause. Notably, the common law rule maintains a negative position, whereas the clause imposes a positive duty. While the Government deny that that is so, it seems to be a widely held belief among stakeholders. The fact that the clause now gives rise to a positive duty is a key concern that many stakeholders have raised. The fear is that that positive duty might impact on a director's ability to assume multiple directorships, which are a feature of the UK company system and provide a number of benefits to companies of all sizes.
	We believe that it will be more difficult for directors to hold multiple directorships, which could affect the pool of non-executive directors. That is of particular concern to the private equity and venture capital industries.

David Howarth: The point that I wanted to make was that amendment No. 402 tightens the law by adding the requirement of honesty. That is what is missing from the present draft. If the Conservatives were to press their amendment on multiple directorships, I would support it.
	 Amendment negatived.
	 It being Seven o'clock, Mr. Deputy Speaker  put forthwith the Questions necessary for the disposal of the business to be concluded at that hour, pursuant to Order [this day].

Mr. Deputy Speaker: With this it will be convenient to discuss the following:
	Government new clause 73— Quasi-loans to directors: requirement of members' approval.
	Government new clause 74— Loans or quasi-loans to persons connected with directors: requirement of members' approval.
	Amendment No. 757, in page 86, line4 [Clause1 189], at end insert—
	'(2A) A company may not agree to such a provision unless it has consulted its employees.'.
	Government amendment No. 591.
	Amendment No. 19, in page 87, line 17 [Clause 191], at end insert
	'or must be conditional on such approval being obtained'.
	Government amendments Nos. 592 and 593.
	Amendment No. 405, in page 91, line 22 [Clause 200], after 'A', insert, 'relevant'.
	Amendment No. 406, in page 92, line 14 [Clause 200], at end insert—
	'(6) "Relevant company" means a company which—
	(a) is a public company, or
	(b) is a subsidiary of a public company, or
	(c) is a subsidiary of a company which has another subsidiary a public company, or
	(d) has a subsidiary which is a public company.'.
	Government amendments Nos. 594 to 597.
	Amendment No. 20, in page 94, line 4 [Clause 204], after second 'company', insert 'or of its associated company'.
	Government amendment No. 598
	Amendment No. 21, in page 94 ,line 8 [Clause 204], after 'company', insert
	'or where a company is permitted to give a director a qualifying third party indemnity'.
	Amendment No. 354, in page 94, line 8 [Clause 204], after 'company', insert 'or any associated company'.
	Government amendments Nos. 613, 163, 164, 599 to 611, 644 and 612.

Margaret Hodge: Chapter 4 of part 10 is designed to deal with situations in which there is a requirement for prior shareholder authorisation, because a director has a conflict of interest. The chapter replaces provisions of part 10 of the Companies Act 1985 with ones that will be more accessible and more consistent. It also implements various recommendations of the Law Commission and the company law review.
	I turn first to loans, quasi-loans and credit transactions. The Bill makes a major deregulatory change to the regime that applies to loans and other similar transactions made by a company for its directors. At the moment, such transactions are prohibited unless certain exceptions apply. The Bill replaces that prohibition with a requirement for member approval.
	The Bill was drafted to implement the Law Commission's recommendation that all the rules on loans, quasi-loans and credit transactions for directors should extend to all companies. That would increase regulation for most private companies, as many of the current rules apply apply to relevant companies. In broad terms, relevant companies are public companies and private companies that are in the same group as a public company.
	Although that recommendation was endorsed by the company law review, we have carried out further informal consultation in the light of the discussion in Committee. Stakeholders clearly supported the proposal that the requirements that currently apply only to relevant companies should not be extended to all private companies. Government new clauses 72, 73 and 74 and Government amendments Nos. 592 to 597, 599 and 601 to 612 will make the relevant changes to the Bill.
	Amendments Nos. 405 and 406, tabled by the hon. Member for Huntingdon (Mr. Djanogly), relate only to the rules on credit transactions and would retain the increase in regulation for loans and quasi-loans. We believe that it would be better to remove that additional regulation. Therefore, under the Government amendments, the Bill will no longer apply the rules on credit transactions or quasi-loans to private companies, unless they are associated with a public company, or apply the rules on loans, quasi-loans and credit transactions with persons connected to a director to private companies, unless they are associated with a public company. Unlike in those Opposition amendments, we have not gone back to the concept of "Relevant company", as that added to the complexity of the current law. Instead, Government amendments use the concept of "associated company", which creates consistency with the rest of this part of the Bill. The rules that currently apply only to relevant companies will, under these amendments, apply only to public companies, and to any private company associated with a public company.

Jim Cousins: I am following my right hon. Friend's arguments on these complex issues as closely as I can under the circumstances. Can she tell me whether, in light of the statement that she has just made, the new clause on quasi-loans would apply to special private-finance-initiative-vehicle companies? Also, does the watering down of the Bill that she has just outlined mean that, for example, the company taking over Thames Water Utilities, which is a foreign bank in a consortium of private equity companies, could be in a format where the clauses under discussion would not apply? If that were the case, it would cause me considerable concern.

Margaret Hodge: I will be happy to write to my hon. Friend when I have looked at  Hansard in detail. If the company to which he refers is incorporated abroad rather than in the United Kingdom, it will not be subject to UK company legislation. On the PFI issue, that depends on the kind of company to which he refers. If it is a public company, it will be covered; there will not be deregulation. But if it is a private company, there will be. Perhaps my hon. Friend would like to write to me, or alternatively, after I have looked at  Hansard, I will write to him in greater detail, if that will be helpful to him.
	I now turn to the issue of exceptions to the rules. We recognise that, in a group situation, it might be more convenient for the loan to be made by a different company in the group. Therefore, amendments Nos. 598 and 600 make it possible for a loan under the exceptions in clauses 204 and 205 to be used by a director to fund their defence in proceedings relating not just to the company, but to any associated companies. Amendments Nos. 598 and 600 achieve the same result as Opposition amendment No. 354, but create consistency by going further and widening the exception in clause 205 in the same way—for example, to actions that the Financial Services Authority might take.
	We do not accept Opposition amendments Nos. 20 and 21. They would widen the exception much further. In particular, amendment No. 21 makes the exception available whenever the company would be permitted by clause 234 to give the director a qualifying third-party indemnity. Let me give an example of the sort of thing that would happen if that were the case. Without shareholder approval, a company could give a loan to a director to defend herself or himself against matters such as driving fines or offences. That would be inappropriate.
	Under the Companies Act 1985, it is currently the case that the prohibition on loans to directors goes much further than the restrictions on the indemnities that may be given in respect of a director. It is possible at present to give an indemnity in circumstances where a loan would be prohibited. It is important that there is some limit on the types of proceedings for which loans may be given to a director under clauses 204 and 205. Companies should not use those exceptions to make loans without member approval for matters that, in reality, have nothing to do with the company. The sums involved under these clauses could be significant, and the exceptions do not contain any financial limits. Given that, it is right that the exceptions should only be used for matters that are properly connected to the company. It would be inappropriate for the exceptions to be available for company funds to be used without member approval to defend a director against proceedings unconnected with company business.
	The Bill has already significantly relaxed the regime applying to loans by replacing the outright prohibition with a requirement for member approval. These clauses create exceptions where not even member approval is required. In order to provide worthwhile protection to members, it is important that those exceptions are sensible in their scope. We do not agree that there is any need to widen the exceptions even further, thus reducing the need for shareholder approvals.
	Amendment No. 613 makes a minor drafting improvement to clause 204, following comments made to us by the Law Society. It is designed to follow more closely the wording used in section 337A of the Companies Act 1985. It is intended to make it clear that clause 204(2) does not make any substantive changes to the current law.
	I now turn to substantial property transactions. Clause 191 implements a recommendation of the Law Commissions that has been widely welcomed, by allowing companies to enter into agreements that are conditional on the approval of the members of the company being obtained. Amendment No. 591 goes one step further, allowing the agreement to be conditional on approval from the members of its holding company as well, in those cases where the approval of the members of the holding company is required. That amendment responds to concerns that companies could be inconvenienced if they were to have to wait for member approvals before they can agree to a substantial property transaction. Opposition amendment No. 19 would achieve the same result.
	Amendment No. 644 deletes clause 223 because the provision made by that clause will now be included in clause 288, and applied not just for the purposes of part 10 of the Bill but for the entire Companies Acts. As a result of the restatement exercise, amendments Nos. 163 and 164 replace references to the Companies Act 1985 with a reference to the relevant bit of the Bill.
	Amendment No. 757 on the compulsory consultation with employees on directors' service contracts was tabled by my hon. Friend the Member for Newcastle upon Tyne, Central (Jim Cousins). I am sorry to tell him that, despite my best endeavours, we cannot support his approach. As he will appreciate, company law is about the relationship between the company, its members and the directors, and the directors should be accountable to the shareholders rather than to employees. However, as he knows, we do entirely agree that companies should be sensitive to pay and employment conditions elsewhere in the group when taking decisions about directors' remuneration. Indeed, the combined code has a supporting principle that the remuneration committee should be
	"sensitive to pay and employment conditions elsewhere in the group, especially when determining annual salary increases".
	I hope that, with that explanation, the House can agree to these uncontentious Government new clauses and amendments.

Jonathan Djanogly: We now move on to a patchwork of technical clauses, and I shall address them in the order in which they appear on the selection list.
	We find Government new clauses 72, 73 and 74 to be uncontentious. Amendment No. 757, tabled by the hon. Member for Newcastle upon Tyne, Central (Jim Cousins), is an interesting proposal. I believe that he is suggesting that a company should not approve long-term service contracts by a shareholder vote unless members are previously consulted. That has to be looked at in the context of different types of company. If we are talking about a small company—a family company, for example—it is unrealistic, because the length of the service contract is, in reality, unimportant: an owner-manager effectively has a service contract for ever, simply because he does not need a service contract as he is the owner of the company, and he would therefore have one for as short or as long as he wanted, until he sold or closed his business.
	The matter is more pertinent to larger companies. It was considered by the Higgs review with regard to corporate governance. The problem that we have with the amendment is that employees are likely to be biased just as much as other directors. Under the combined code, listed companies will have a nominations committee of independent non-executive directors, which will undertake appointments, and a remuneration committee, which will review service terms. The independence of the bodies means that they should not be on the side of the executive directors or the employees.
	Institutions also take a great interest in the matter. The combined code provides for a maximum recommended service term of one year, which is generally a move in the right direction. If a company puts in for a longer term of service, it will invariably be the case that the institutions will want a full explanation. There are thus controls in place to address the matters with which the hon. Gentleman's amendment deals, but tabling it was worthwhile because it has allowed our debate to be put on record. We will not be able to support amendment No. 757.
	As the Minister noted, Government amendment No. 591 is almost identical to amendment No. 19, which we tabled. Our amendment was inspired by the Law Society and would bring the provisions of clause 191(2) in line with subsection (1) of the clause. We are happy to go along with the Minister's proposal on substantial property transactions.
	Amendments Nos. 405 and 406 would amend clause 200. Although the clause replicates a provision of the Companies Act 1985, it also permits certain credit transactions that were completely prohibited by section 330 of that Act to be approved by members. Clause 200 applies to all companies, rather than public companies under the 1985 Act. Under the clause, private companies that had been able to enter into such a credit transaction will have to obtain member approval.
	Although we realised that the provision was a recommendation of the company law review, it flew in the face of the deregulatory spirit of the Bill. When we asked the Minister for Industry and the Regions in Committee why private companies were being dragged into the net of requiring shareholder consent, she replied with a letter in which she pointed out that the provision followed the Law Commission's recommendations that restrictions on a company's power to make loans to directors and persons connected with them should apply to all companies. However, just as we were about to give up hope on this, we heard only last week that the Government had changed their mind. I thus welcome Government amendments Nos. 592 and 593. It all goes to show that the Bill continues to be something of a moving feast— [ Interruption. ] Well, a feast of some sort anyway, as my hon. Friend the Member for Reigate (Mr. Blunt) suggests.
	The Minister said that the Government will reject amendment No. 20. Again, the amendment came from the Law Society. The insertion of the phrase "or any associated company" would enable a company, without the need for shareholder approval, to make a loan to a director to enable him to defend proceedings in connection with any alleged negligence or breach of duty in relation to an associated company.
	Clause 204 substantially narrows the existing provision on the funding of a director's expenditure on defending proceedings that is contained in section 337A of the 1985 Act. In the view of the Law Society, the clause is too restrictive, and it also points out that there has been no public consultation on the proposed change. The reference to "the company" in subsection (1)(a)(i) does not even extend to the company's holding company, which is curious given that the clause contemplates a loan being made to a director of the company's holding company, but only to defend proceedings in relation to the company. That is illogical.
	The Law Society's view is that subsection (1)(a)(i) should at the very least refer to the company or its holding company, and that it would be preferable if it referred to the company or any associated company. Otherwise, if a person is a director of more than one company in a group, each company will have to enter into a separate arrangement with that director, rather than one company being able to enter into an arrangement that covers all the relevant companies. That does not seem sensible. The term "associated company" is defined in clause 256. However, we note that Government amendment No. 598 addresses the problem, albeit with a different drafting approach. That amendment will be a popular move with directors who are in need of help from their companies.
	The Law Society also notes that the phrase
	"any liability of the company incurred in connection with the matter"
	in clause 204(2)(a) is potentially much wider than the wording in section 337A(4) of the 1985 Act, thus making the exception in the clause much narrower. The 1985 Act refers to:
	"any liability of the company under any transaction connected with the thing in question falling to be discharged".
	In other words, under section 337A(4), the requirement to discharge the liability relates to only the thing done to provide the director with the funds to meet the relevant expenditure, or to avoid incurring it, whereas, under clause 204, the words
	"in connection with the matter"
	do not clearly relate back to the words
	"anything done by a company"
	in subsection (1), and could thus refer to the entire circumstances of the liability or alleged liability. The Law Society thinks that the wording used in section 337A(4) is clearer and should be retained. Government amendment No. 613 effectively deals with the problem that the Law Society has identified, so I think that we have made progress.
	Government amendments Nos. 163 and 164 are uncontroversial, as are Government amendments Nos. 599 to 611. However, I would be grateful if the Minister could provide further explanation of Government amendment No. 644, which will delete clause 223, which relates to resolutions.

David Howarth: I do not want to detain the House by going through the amendments one by one. I am happy to go along with the approach proposed by the Government, but I would not want to go too far down the line on which have started because of the underlying reason why the regulations were set out in the first place. It is difficult for directors to borrow money from their companies because it is important to maintain the separateness of the fund that a company holds from its directors. That gives rise to a protection, not so much for shareholders, but for creditors, so that they can be assured that a company's assets are as they appear, rather than having been dissipated by being loaned out to people with a direct interest in the company. The deregulation of quasi-loans and credit transactions is not unobjectionable, but I would not like to give the impression that we would be happy to take a deregulatory route all the way down the line in this area.
	I will be interested to hear the argument of the hon. Member for Newcastle upon Tyne, Central (Jim Cousins) for amendment No. 757. I suspect that this is not the right time to discuss the consultation of employees and the wider question of industrial democracy, but he has a good point. We are in an era in which employees face increased precariousness in their employment experience, given that more and more people are in temporary or part-time employment—employment that is not a traditional permanent job. It is thus not helpful for directors to give themselves long contracts that amount to a tenure. At the very least, companies should think about the consequences for industrial relations and human relations of doing such a thing without first talking to their employees.

Jim Cousins: I speak to amendment No. 757 tabled by myself and my hon. Friends the Members for Great Grimsby (Mr. Mitchell) and for Hayes and Harlington (John McDonnell). It does not entirely surprise me that my right hon. Friend the Minister is unable to agree to it, but there is none the less recognition by the official spokespeople for all the main parties that it relates to a serious issue—I look forward with interest to the views of Plaid Cymru.
	In the past, the type of amendment that I propose would have been dismissed out of hand as something that would better belong to the North Korean "Down with Imperialism" day that has been playing on our television screens all afternoon. The matter is much more serious; we live in a society in which the divisions of wealth and power are probably greater than at any time in our history over the last 100 years. There is a proper market in the directing of companies—in corporate control—in which the company's employees are entitled to have some involvement.
	It is important to point out that my amendment does not say that directors, contracts and remuneration would have to have the approval of employees, merely that employees should be consulted, which is just about the weakest possible formulation of the proposal. However, the point is undeniable and has indeed not been denied from the Treasury Bench or from the Front Bench of the main Opposition party.
	The attempt to say that the issue can be dealt with entirely by remuneration committees is completely mistaken. Of course, my hon. Friends and I welcome the fact that there is more active consideration of such issues inside companies. We welcome the strengthening of the power of non-executive directors and the fact that remuneration committees are considering the issues, but the company's employees, whose employment experience is becoming less secure in today's flexible labour market, are entitled to have some right to the expression of an opinion about such matters and about the policies that might be involved in the appointment of directors, the extension of their contracts and their remuneration.
	During our debates on the Bill we may have missed an important moment, when for the first time a representative of British workers was elected to the supervisory board of a German company with a presence in the UK. That is an important moment in the extension of European ways to our wonderfully Anglo-Celtic system—as there is a representative of Plaid Cymru in the Chamber, I shall use that Australian term rather than the words "Anglo-Saxon". It reminds us that globalisation is a two-way traffic; there are new practices to learn about all around us.
	At present, the average annual pension of a director of a quoted company is said to be about £167,000. That is a fabulous figure. In the United States, there is increasing concern about how pension rights and stock options are exercised. In the UK, there has been a dramatic fall in final salary pension schemes for employees in the private sector, but there has been no such fall in final salary pension schemes for directors. Such inequity cannot survive. It will become a matter of public debate and public controversy, and the first and right place for that is within the confines of the company itself.
	Of course, at present there is no set way for a company to consult its employees, and our amendment does not attempt to specify one. However, that, too, is something a sensible company ought to consider; it should not require the intervention of laws and Governments to force a company to think about how to consult its employees on this or other matters. Perhaps the amendment will serve a purpose by reminding people, in the context of how we take decisions in companies, that companies must have some regard to the issue.

Jonathan Djanogly: First, I will address amendment No. 761. The suggestion is that if a company has only one director, not only should they be a natural person, but they should be domiciled in the UK. In the UK, we pride ourselves on being an international centre for conducting business. The amendment would be a backwards step and would fly in the face of London as an international community. It will not have the support of the Conservative party.
	On Government amendments Nos. 715, 716 and 717, which deal with shadow directors, in Committee we explained the complex case law surrounding clause 168 and the difficulties in determining whether a person is a shadow director, including by making reference to the Ultraframe case of 2005. Hon. Members will be pleased, if not relieved, to hear that I do not intend to rerun that debate this evening. We recommended that the Government should recognise those complexities and remove the requirement for shadow directors' details to be entered on the relevant registers. In the light of that, the Government have reconsidered their position and tabled amendments Nos. 715, 716 and 717. That is welcome and we commend the Government on accepting our reasoned approach to this matter.
	Clause 157, which relates to the minimum age for directors, is one of the more regressive clauses in the Bill. It provides that people must be 16 to become directors. The answer to my written question of 31 January revealed that on 31 December last year there were 431 directors under the age of 16 in England and Wales and that 200 were under 10. I can envisage circumstances in which controlling family companies or trust arrangements from wills drafted many years ago would require that a child be appointed a director and that not to do so would involve losing assets or causing problems in respect of inheritance. In Committee, I raised the question of whether the Secretary of State would make an exception under clause 157 in those circumstances, which involve an individual rather than some class basis of individuals. Unfortunately, I did not receive a full answer in Committee. Perhaps the Minister will provide one this evening.
	Over the summer, the pages of the press seem to have been filled with stories of young entrepreneurs developing thriving and often profitable businesses. They include Fraser Doherty, who makes jam using his grandma's recipe, and who attacked the Government's attitude to young entrepreneurs, saying that the enterprise culture should start not in the boardroom, but in the classroom. On 7 October, the  Financial Times reported on a 15-year-old boy who founded a cosmetics company. I have heard of other successes, not least the teenager in my constituency who started up an online company selling shoes to people with big feet. He is doing very well, thank you very much.
	In Committee, we supported the proposition that under-16s who are currently directors should be able to remain directors after the implementation of the clause, but the Government rejected that. We have proposed it again in amendment No. 388. However, we have thought further about the clause over the summer, and we now want to make a stand in support of the innovating youth of our country by tabling amendment No. 385. This is what the modern Conservative party stands for: youth, innovation and entrepreneurial spirit. What sort of example does the fuddy-duddy Labour Government set by attacking innovative youngsters?
	That said, if the clause remains, my reading of subsection (5) suggests that a child who owned all the shares in a company—for example, a 14-year-old who had a bright idea and incorporated—and who appointed his parents as directors and told them what to do could, presumably, be treated as a shadow director. However, I am not sure that that follows logically. If the child is considered to be not old enough to take decisions as a director before he or she is 16, how can we say that the same child has the nous to act as a shadow director? Amendment No. 386 is designed to elicit clarification on that point. In Committee, the Minister responded to our argument by saying that really talented young entrepreneurs who direct businesses should be subject to criminal sanctions. We believe that we should support our youth and that there is merit in our amendment.
	I am not sure why the words,
	"The regulations may make different provision for different parts of the United Kingdom."
	remain in the Bill. Amendment No. 387 would delete them. We are considering UK corporate law, and the words seem inconsistent and illogical. The Minister's response in Committee was that the provision was there "in case", but I am still in the dark as to the Government's reasons. Perhaps the Minister will now enlighten me.

David Howarth: The hon. Gentleman should hang around for a bit, as he might find that that is no longer the case. The Government appear to have changed their mind on that matter, and very glad we are about it, too.
	There is a problem with amendment No. 762. I do not think that what the hon. Gentleman said was correct. The problem relates to the concept of the corporation sole, which is not a sort of fish, but is largely a sort of bishop. Most corporations sole are traditional offices, such as the office of bishop, where the aim of the law is to separate the person who holds the office from the office itself. If one were to leave money to the Bishop of Ely, the question would be whether one left it to the bishopric—that is, the ongoing office of Bishop of Ely—or to the human being who holds that office for the time being. The two things are separate.
	The hon. Gentleman commented that it was more difficult to track down individuals who are office holders. It seems to me that precisely the opposite is true in the case that I have just outlined—that of the Bishop of Ely. It is quite easy to find the present Bishop of Ely: he is usually in his palace. It would, however, be quite difficult to find the former Bishops of Ely. If a company is set up in which a directorship is held by the Bishop of Ely as an office—that is, the corporation sole—accountability is far easier under the present arrangements than it would be if amendment No. 762 were passed and it was impossible to offer the directorship to the office of Bishop of Ely, with the result that the company had to keep changing the person to the new holder of the office. I see the hon. Gentleman's general point about office holders, but I am not entirely convinced that the amendment would work as he says it would, especially with regard to bishops.
	On the under-16s debate, I shall not detain the House by reciting my own list of young entrepreneurs, but I am sympathetic to the argument advanced by the hon. Member for Huntingdon (Mr. Djanogly). It is true that many young directors—those aged less than 16—are directors by reason of family settlements: for example, their parents died younger than expected and the way in which the family settlement works requires them to count as a director. There is a worry that if we impose on directors, as we do in the Bill, a long series of onerous criminal law duties, it might not be sensible to expect very young children to meet those duties. On the other hand, the age of criminal responsibility is 10, not 16. I therefore wonder whether 16 is the correct age to cut off directorships and whether, in the light of the research that has been done into young people holding directorships and the evidence about young entrepreneurs, 16 might be thought to be too advanced an age for the cut-off point. Another age, less than 16, might be more appropriate.
	The transitional arrangements remain bothersome. I cannot see why the Bill should take the line of insisting that all existing under-age directors be cut off before their prime. A big issue in the Committee, to which I hope Ministers will give some thought, was the question whether we should allow existing under-16 directors to continue as directors—obviously, the situation would last no more than 16 years, and in most cases considerably less than that—rather than make the arrangements necessary to change directorships almost on the fly.

Amendment made: No. 492, in page 100, line 39 [Clause 216], leave out subsection (4) and insert—
	'(4) No approval is required under this section on the part of the members of a body corporate that—
	(a) is not a UK-registered company, or
	(b) is a wholly-owned subsidiary of another body corporate.'. — [Margaret Hodge.]

Madam Deputy Speaker: With this it will be convenient to discuss the following amendments:
	No. 413, in page 121, line 24, leave out 'or another person (or both)'.
	No. 414, line 25, leave out subsection (4).
	No. 415, line 33, at end insert—
	'(6) A derivative claim under this Chapter may only be brought if the directors have been requested by a member of the company to bring a claim in respect of an act or omission specified in subsection (3) and have not agreed to the request after the expiry of a reasonable period from service of the request.'.
	No. 416, in page 123, line 8, clause 263, at end insert ', or
	'(d) that the directors have decided not to pursue the claim, unless the court considers that there is a substantial risk that in reaching their decision they acted in breach of their duties to the company, or
	(e) that the claim is one which the company in general meeting could validly decide not to pursue, unless the court considers that there is a substantial risk that a decision not to pursue the claim would only be taken as a result of votes cast by members with a personal interest, direct or indirect, in the decision, or
	(f) that pursuing the claim would not be in the interests of the company.'.
	No. 417, line 8, at end insert ', or
	'(d) that the directors have decided not to pursue the claim, unless the court considers that there is a substantial risk that that transaction constitutes a fraud on the minority of members of the company, or
	(e) that the claim is one which the company in general meeting could validly decide not to pursue, unless the court considers that there is a substantial risk that a decision not to pursue the claim would only be taken due to the majority of the shares being in control of those with a direct or indirect interest in the transaction.'.

Jonathan Djanogly: For the first time today, we have a decent amount of time for Opposition amendments—I suppose that I should be grateful.
	Despite amendments in the other place, which have improved clause 260, part 11 dealing with derivative claims is a complex area that still gives many much concern. Currently, a shareholder can only bring a claim on behalf of a company against directors in limited circumstances. Part 11 sets out a new procedure of derivative actions that enable shareholders to bring a claim on behalf of the company for directors' breach of duty, if that breach has not been authorised or ratified by the company. Together with part 10, we believe that this has significant potential to increase liability for directors.
	Before I go any further, I should like to explain the current common law position and set out what the Government aim to do in this area. Derivative claims are proceedings brought by a shareholder. Under the new Bill, they must be either
	"in respect of a cause of action vested in the company and seeking relief on behalf of the company"
	and
	"brought only in respect of causes of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company."
	This is significantly wider than the current common law position.
	There are two major concerns in relation to part 11. First, that it does not advance the common law and, secondly, that its effect, particularly when it is combined with part 10, will be detrimental to directors. We have tabled amendments that seek to deal with those concerns, which I shall discuss in due course. The leading common law case on which this codification attempts to build is that of Foss  v. Harbottle. If the Bill's intention is to enshrine in statute the well-established exceptions to the rule set out in the case of Foss  v. Harbottle, our view and that of the lawyers who have advised us is that that is not immediately achieved by the current drafting. The rule in Foss  v. Harbottle is that a member cannot bring an action on behalf of the company for an injury done to the company; the company is the injured party and the action vests in it.
	The exceptions to the rule in Foss  v. Harbottle include circumstances in which the transaction constitutes a fraud on the minority. That includes fraud proper as well as breach of fiduciary duty as a director and circumstances in which the wrongdoers are in control of the shares of the company. The non-inclusion of this fraud control test in the Bill represents a radical departure from the previous thresholds to a member making a derivative claim. The result of this non-inclusion is that it will be easier for shareholders to bring claims against directors.
	Although the court will now be required to consider the evidence and merits at the earlier stage, there is a danger that this part of the Bill will simply create a more complex procedure without any corresponding reduction in the potential administrative burdens for companies. It therefore makes sense that part 11 should be amended to preserve the traditional thresholds of fraud on the minority and wrongdoer control, as that would make it clear in statute that this new regime is not intended to sweep away the existing case law.
	As the new legislation does not replicate existing case law, it will take some time for a body of case law to develop. We feel that this will create uncertainty for some period as to the extent of the derivative claim provisions and the burden of this will largely fall on the company. This could, in part, be remedied by the legislation mirroring more closely existing law. In practice, derivative claims have to date been relatively rare, but any potential benefit this codification will have, which will be minimal, will be far outweighed by the possible damage that will be wrought by increased shareholder litigation and reducing the number of people who are willing to take up company directorships in the UK.
	A further key change in this Bill is that the persons engaging in fraudulent conduct need not have received a benefit. Members will therefore be allowed to make claims for an honest act or omission of a director where that results in a breach of duty, regardless of whether the individual has received a benefit. Under the existing common law, it is not possible to make a derivative claim as a result of negligent action unless the person in breach of duty has received a corresponding benefit. This represents a shift from the existing position and the focus is much more on allowing member control of directors' actions.
	The range of circumstances under which a derivative action may be brought will be much wider than is currently the case. This is once again an area of the law where the Government have said that the intention of putting in new clauses has been to codify the existing common law position, but this is, unfortunately, once again an area where the Government are overturning the common law position. The codification of the basis of bringing a claim and the means of bringing that claim will serve only to make it easier for claims to be brought against company directors.
	Company directors also fear that increased litigation may lead to increased insurance premium costs—that is a very real fear for company directors. Should the rates that directors and officers have to pay go up, there will be a further disincentive to people becoming company directors. I am afraid that that is becoming a theme of parts 10 and 11, and it is not a happy one.
	The concern that part 11 will increase potential liabilities for directors and the chance of tactical and vexatious litigation by activist shareholders has been raised by many others. The City law firm, Lovells, says:
	"The Explanatory Notes to the Bill explain that 'the"
	derivative action
	"clauses do not formulate a substantive rule to replace the rule in Foss v Harbottle, but rather a new procedure for bringing such an action which set down criteria for the Court distilled from the Foss v Harbottle jurisprudence'. It is hard to see how this can be correct. As the Explanatory Notes themselves make clear, the rule in Foss v Harbottle is that is for the company to bring proceedings where a 'wrong has been done to the company', and that an exception can be made where there is conduct amounting to a fraud on the minority. The case of Estmanco (Kilner House) Ltd v Greater London Council made clear that 'fraud' in this context extends beyond fraud at common law to include 'the equitable concept of fraud on a power', including an abuse or misuse of power. It is generally considered that fraud, in this sense, does not include negligence. Other grounds include where the director's act is illegal, ultra vires and not ratifiable, or where the shareholder has acquired a personal right against a relevant director.
	Whilst the Explanatory Notes say that Part 11 does not seek to overturn these previous 'well established principles', it is hard to see how this can be. If Part 11 comes into law, individual shareholders will be able to bring proceedings against directors, including in respect of negligence, which cannot be summarily struck out for want of locus standii, but only under a brand new test, which is unconnected to these common law factors. As a result, there is a clear risk that multiple stakeholders might make good use of Part 11 to further their own various platforms, at the expense of companies' time and money, and their directors time and money, personal stress, and claims upon their D&O insurance. It may even be possible for such a shareholder to use the provisions of this Part to apply for an order that the company pay his costs of bringing the proceedings, along the lines of the application upheld in Wallersteiner...If so, this could produce the very odd result that a number of activists could each buy a single share in the company, and each bring separate proceedings against directors, in respect of conduct predating their shareholding, at the company's expense. Such claims may well, however, be struck out by the Court under the first stage of section 242 referred to above."
	We hope that that would be the case, but clearly the risks are there.
	Let me turn to our amendments, which seek to rectify the problems that I have highlighted. Clause 260(3) states:
	"A derivative claim...may be brought only in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company."
	That wording is not sufficiently precise and is too wide. In particular, the use of the words, "or proposed", go too far. A member should not have the statutory right to make a derivative claim to restrain some proposed act or omission. The intention should be to provide a remedy for a member where there has been an actual act or omission. To include the words, "or proposed", may be a charter for members at any time to take action to restrain what they thought was a potential future breach of the relevant duties. We therefore propose to amend the wording of the clause as set out in amendment No. 412. In Committee, the Solicitor-General said that this approach is too restrictive, but we are yet to be convinced by his arguments.
	Amendments Nos. 413 and 414 were brought to us by the Institute of Chartered Accountants, which sets out its position in its brief of 10 October:
	"We are concerned that the draft clauses do not reflect the Government's intention, as stated in its explanatory material and agreed to in the House of Lords Committee stage debate, of codifying existing common law principles on derivative actions. These clauses create new rights for members to bring a derivative action against persons other than directors. An actual or alleged breach of duty by a director"—

Jonathan Djanogly: Yes, but as I explained to the Solicitor-General, although the Government are maintaining that the case remains, the clause as drafted will significantly alter the application of the case.
	Action against a director for breach of duty could, therefore, be effectively used as a springboard for a member to bring a derivative action against others. The Institute of Chartered Accountants believes that it will encourage nuisance claims against directors. We therefore tabled amendment No. 413. In Committee, the Solicitor-General stated that clause 260 was drafted on Law Society recommendations. He gave examples of third parties who hold money, transferred in breach of trust from the company, and who should be permitted to be pursued by a member of the company. Although that may be true in limited circumstances, we remain concerned about the growing scope of the clause and support the position of the Institute of Chartered Accountants.
	The City law firm Allen and Overy brought the substance of amendment No. 415 to us. It aims to ensure that the company retains an opportunity to exercise its primary right to sue the directors. Although it is easy to get carried away with arguments for and against members being able to seek relief on the company's behalf, we should not forget that the primary right is for the company to initiate the action. The amendment would embed that right in primary legislation.
	Amendment No. 416 is aimed at resolving some of the problems that I have highlighted. The Law Society has been a great help in drafting the amendment, which was first tabled by Lord Hodgson in the other place. It would insert in clause 263 three new provisions, which oblige the court to refuse permission to continue a claim.
	The first provision would apply when the directors had decided not to pursue the claim. The second would apply when the shareholders had decided not to pursue the claim. The third would apply when the court concluded that pursuing a claim was not in the company's best interests.
	The first provision would apply when a company's directors had decided not to pursue the claim, unless the court considered them to be in breach of their duties in making the decision. The purpose is to ensure that the court does not second-guess the directors' commercial judgment unless it considers that, by deciding not to proceed, they are in breach of their duties. In Committee, the Solicitor-General maintained that that should be a relevant factor for the court in reaching its decision but not a bar. He said that the amendment would prevent meritorious claims from being granted permission for leave. However, we urge the Government to trust directors and accept the amendment.
	The second provision, for when shareholders had decided not to proceed, would apply when the court believed that the majority of shareholders, excluding those with a personal interest in the decision, did not wish to proceed with a claim.
	I hope that the third provision is self-explanatory and constitutes common sense.
	Although the Government gave explanations about the amendment in Committee, we do not believe that they have merit. The amendment would improve the drafting considerably. We emphasise that its purpose is to introduce a threshold test that does not involve expense.
	The Government have added new reasons for the court to reject a derivative claim. Are the tests strong enough? We contend that they will not be in practice. There is a concern that it will be possible for firm advice to be given on the court's approach to the exercise of its unfettered discretion only after years of jurisprudence. Uncertainties will be damaging to business.
	Amendment No. 417 would reintroduce the fraud on the minority and wrongdoer control tests that existing common law contains. I have already spoken about the way in which the radical departure from common law has worried several stakeholders to whom we have spoken. From the way that the hon. Member for Cambridge (David Howarth) is shifting in his seat, I have a feeling that he, too, will cover the matter.
	I thank the Solicitor-General for his letter of 25 July on derivative claims, which set out the legal position about fraud on the minority following implementation. Although we acknowledge that the Government are attempting to clarify a difficult matter, we believe that the common law position should prevail and have tabled amendment No. 417 on that basis.
	The issue is important to us. We have been lobbied significantly by companies, accountants, solicitors, the CBI and many interest groups, including many City solicitors. The Government need to reconsider the matter because if we get it wrong, we open up the possibility of a culture of litigation, which exists in the United States, but that we do not want to experience in this country.

David Howarth: I am surprised that so many Members are present now that we have got on to Foss  v. Harbottle, the heart of lawyer's company law. To re-emphasise the point made by the hon. Member for Huntingdon (Mr. Djanogly), the whole point of the rule in Foss  v. Harbottle is to save time. It is to prevent shareholders—particularly minority shareholders—trying to sue in the company's name to enforce the company's rights against somebody else in circumstances where the company could easily get rid of the wrong itself, does not want to sue or can validly prevent the action from going forward.
	As I understand it, the Government have said that they are trying to clarify the law without codifying it. As the hon. Member for Huntingdon has said, the trouble with that is that it will tend to cause some confusion in areas where the statute does not mention the previous law. Would the courts reconstitute the previous law? It might be argued that it will be several years before we end up back where we started.
	As the hon. Member for Huntingdon said, the law on this matter is not entirely clear. I have a problem with his amendment No. 417, simply on the ground that the concept of fraud on the minority is so difficult and so contested in the courts and academic journals that it is not really worth putting into a statute. Most academic writers think that it is too confusing to use, and many point out that what it really means is fraud against the company. Perhaps we should not put into statute a phrase of such contested meaning.
	Other amendments that have been tabled have varied merit. The idea of amendment No. 412, which would leave out the word "proposed", is, as the hon. Member for Huntingdon said, to prevent derivative actions in advance of the harm being done. That seems to me a useful aspect of the current draft, as it is frequently cheaper for all concerned to prevent harm from being done than to try to cure it later. Obviously, the word "proposed" does invite possible extra legal actions. The question, however, is whether the safeguards in the rest of the clauses with which we are dealing prevent abuse. To a large extent, I think that they do. I would not therefore support amendment No. 412.
	Amendment No. 413 would take away the ability of a derivative action to cover rights that the company has against third parties. In the past, that has always been thought to be possible, and the amendment would impose a restriction on such action. This area of law is always about the company's rights, not the personal rights of the individual shareholders or directors. The question is whether derivative action should be used to allow shareholders to enforce the company's rights, and it seems to me perfectly sensible to propose that it should, given the other restrictions on the possible use of such action.
	Amendment No. 415, however, seems to be a more sensible proposal. As has been said, the whole point of Foss  v. Harbottle is to prevent shareholders in a minority action from wasting everyone's time by bringing a derivative action that is unnecessary or has no chance of succeeding. The amendment allows the company—in particular, the board of directors, the organ of the company that normally has such a right—to decide first whether it wants to proceed with the action. It seems to me to be straightforwardly correct, and in the spirit of the existing law that goes back to the original 19th century cases, to allow the company in the form of the board of directors to have a pre-emptive right of first refusal on whether an action should be brought.
	Amendment No. 416 would reconstitute the details of the rule itself. Its ambition is admirable, and proposed subsections (d) and (e) are clearly linked to legal developments in the 19th century—the former to the Atwool case of 1867, and the latter to the Menier  v. Hooper's Telegraph case of 1874. The intention behind the amendment is good, but it is difficult to encapsulate very complex cases in statute. In a way, the amendment is vulnerable to the objection expressed by the hon. Member for Huntingdon against the whole thrust of the Bill—that it tries to put into statutory form a very complex area of case law. One could argue that he has not got it quite right.

Jonathan Djanogly: The hon. Gentleman is right that I do not want to create new case law, and that the amendment's attempt to incorporate in the Bill the existing common law position runs the risk of falling into that trap. However, he will appreciate that the amendment is an attempt to ensure that that the existing provisions should not be widened.

David Howarth: I appreciate the attempt, but the question is whether it is entirely successful.
	Amendment No. 416(f) is a new departure, in that it would insert in the Bill the sort of catch-all provision to which one would normally object on the grounds that it is vague and unclear. The amendment has its merits, therefore, but needs more work.
	I have already dealt with amendment No. 417, which I said was not a good idea because it would bring back the notion of fraud on the minority.
	Finally, the Bill is an important attempt at reform, as the hon. Member for Huntingdon has noted. He seems to think that that reform is not desirable, but many people would differ with him about that. The particular question that I am dealing with here is whether it is necessary to prove that the directors made a gain from their wrongdoing before a derivative suit can be brought. The present law states that such an action cannot be brought against directors who have committed negligence, except where that negligence has resulted in a gain for the wrongdoer.
	It is not entirely clear why that rule is in place. I agree with the many people who think that it is simply an historical accident, the result of taking too seriously the notion of "fiduciary"—that a gain has to be identified before legal action can be taken. Another possibility is that the relevant case law was not consistent, so that judges went one way, regretted it, and then decided to go the other way.
	The underlying question is whether a derivative suit should be possible when directors have lost the company money through their negligence. That would give rise to a claim that belongs to the company, and the next question is whether the proposed reform in the Bill would give directors an incentive to do their job better. I think that it would and therefore am in favour of it.
	I recognise that there could be a problem if people on the outside think that what is being is a codification rather than a reform. That would not be correct: the Bill proposes not a codification but a reformed system that has some merits.

Mike O'Brien: I thank the hon. Members for Huntingdon (Mr. Djanogly) and for Cambridge (David Howarth) for their comments on this part of the Bill. I particularly thank the hon. Member for Cambridge, whose erudite and helpful contribution has helped to clarify many of the issues. I should like to make a couple of points for the sake of clarification before I set out a brief outline of the Government's position.
	The hon. Member for Cambridge is quite right to say that our aim is not to codify the whole of Foss  v. Harbottle. That case states that a only company can sue for a breach of duty, and the courts have allowed shareholders certain exceptions to sue by various derivative claims. We are replacing the exceptions—rather than codifying—by means of part 11 of the Bill. As I have said, Foss  v. Harbottle will survive.
	The hon. Member for Huntingdon is right to say that we need to ensure that we do not create a culture of litigation in this country. We believe that our provisions will strike a balance that will avoid the development of that kind of culture. Our aim is similar to his in that regard, but we disagree over the way in which the provisions will apply.
	Both hon. Members made the point that, in order to develop this area of law further, there would need to be more case law. They are quite right, and the new statute will bring new case law with it. The common law has developed through case law in any event. Even if we did not introduce these reforms or bring into operation the clauses in part 11, there would still be some case law. There will therefore be a degree of further development of the law, and the statute will help that development. That is our intention.
	I also agree with the hon. Member for Huntingdon that this is an important part of the Bill. Let me therefore outline the Government's approach in this area. Our starting point has been the need to balance the ability of directors to manage the affairs of companies in good faith and the right of the members to bring an action on behalf of a company in circumstances in which a director has acted in breach of his duty to the company and in which an action would not otherwise be brought. I believe that part 11 achieves that balance very well.
	A derivative claim is not a shareholder action in the sense of an American class action. It is an action brought by a shareholder on behalf of a company. It follows from this that any damages arising from a successful claim would be paid to the company, not to the shareholders who have brought the action. Since shareholders who bring an action may also face heavy costs, a derivative claim is very much an action of last resort. It is not something that any shareholder is likely to embark on lightly, as they could put themselves in a very difficult position if they did so.

Mike O'Brien: It will be clearer and more accessible in the sense that the constraints on someone using it in a way that we would not regard as justified—I am not sure that there is much difference in our view on that—are quite strong. Yes, the procedures that I have set out and the amendments that were tabled in another place make the procedure more accessible. If the hon. Gentleman's argument is—I trust that it is not—that we ought to make the law inaccessible to ordinary shareholders in case they exercise their rights, it is a bad argument. Our aim should be to try to create clear law so that the directors know where they are, the shareholders know what action they can take and the general public can understand it.
	We are seeking to set out our view that the shareholders should, in restricted circumstances, be able to take a derivative action, but that the courts should have the ability to intervene to prevent frivolous actions or actions that are not aimed at ensuring the commercial success of the company. In other words, they are aimed at a pressure group pursuing a viewpoint that is not about the commercial success of the company.
	I think that we have struck a proper balance. The amendments that we have tabled and have had accepted in another place are able to deal with the main concerns that the hon. Member for Huntingdon raised. As I say, I do not think that there is any great difference of view of what we want. The hon. Gentleman fears that things will happen which we say we have provided protections against. Our view is that those protections will ensure that we are able to achieve the benefits of more accessible and clearer legislation without the problems caused by unnecessary litigation.
	I shall now look at the amendments to clause 260, beginning with amendment No. 412, which attempts to delete "or proposed". Amendment No. 412 is based on a misunderstanding of the current law and the position under the statutory statement of directors' general duties. Clause 179 provides that the consequences of breach or threatened breach of the statutory duties are the same as would apply if the corresponding common law or equitable principle applied. The reference to threatened breaches is important. Under the present law, companies may be able to take pre-emptive action to stop a breach of duty from taking place before it actually happens and the damage is done. There could, for example, be a threatened breach of duty if a director was refused permission to exploit a corporate opportunity but then announced that he was going to go ahead and do it anyway. The remedies in such cases, which include an injunction or a declaration, provide an important safeguard of a company's interest against wrongdoing by a director. A derivative action is an action brought by the company, and there is no sensible basis on which the remedies available to the court should be limited in the way proposed in the case of a derivative claim.
	Amendment No. 413 would remove the right to bring a claim against a third party. That provision in clause 263 flows from a clear Law Commission recommendation, which is explained in detail in part 6 of the Law Commission's report on shareholder remedies. The principles are important. The claim should be allowed only if there has been a breach of a duty by a director, but the relief sought may be against a third party as well as against the director personally.
	9.15 pm
	It might be helpful if I set out a couple of examples that have been cited by the Law Commission in its report on shareholder remedies. In the first example, a relief is sought from a third party for knowingly being in receipt of money or property or for property transferred in breach of trust or for knowing assistance in a breach of trust. It seems to us correct that the member should be entitled to pursue a remedy against the third party in circumstances where he is holding assets belonging to the company, which he has obtained in those particular circumstances.
	In the second example, a profitable company is a victim of a tort by a third party—perhaps another company. The directors, while otherwise committed to the well-being of the company, have ulterior motives of their own for not wishing to enforce a remedy for the tort. Although the directors would in those circumstances be in breach of duty, that breach would not have given rise to the claim, so it would not be open to a member to bring derivative proceedings against a third party. Again, we believe that that is an appropriate outcome.
	I hope that those examples show that it is possible to uphold important principles while placing reasonable constraints on the application of the provision and that this would not result in members seeking to bring derivative claims against third parties simply where they disagree with a decision of the board not to sue a third party. I believe that clause 263 achieves that.
	I now wish to deal with the provisions in clause 264, which respond to the requests from some respondents to the company law reform White Paper, including the Law Society, that part 11 should state clearly that it is immaterial whether the cause of action arose before or after the person seeking to bring or continue a derivative claim became a member of the company. That reflects the position in the common law derivative action, and the provision also makes it clear that current members, even if not members at the time that the corporate cause of action arose, are the only plaintiffs entitled to bring proceedings. In doing so, it accurately reflects the nature of the derivative action that is the company's cause of action. As such, the point in time at which the member became a member is immaterial. I cannot therefore support the amendment proposed by the hon. Member for Huntingdon.
	Amendment No. 415 provides that a derivative claim may be brought only if the directors have refused a request by a member to bring a claim. The amendment goes to the heart of what we are seeking to achieve in our reform of the law in this area. At present, a derivative claim will not be available to the minority shareholder unless he can show that, to put it briefly, the wrongdoers are in control. The onus is thus on the claimant minority shareholder who seeks to bring a derivative claim to allege in his statement of case, and then to demonstrate, that those whose actions he complains of are in control of the company and will not permit its name to be used as claimant in the action.
	If the minority shareholder cannot demonstrate control, the action will be dismissed. However, the minority shareholder does not need to be able to demonstrate that the company has rejected a formal application to instigate proceedings, nor show that he has procured the summoning of a general meeting to consider the question, which has then rejected his request.
	As the Law Commission observed, the meaning of "wrongdoer control" is not clear, and as long ago as 1962, believe it or not—it sometimes takes us a long time to achieve things in this place—the Jenkins committee said that it would be
	"extremely difficult to devise a satisfactory general provision"
	expressing this concept and the remainder of the exception to the rule in Foss  v. Harbottle in wider terms. That is why the Law Commission has proposed a new statutory remedy.
	Under the proposed statutory procedure, a member need not demonstrate wrongdoer control, but one of the factors that the court must take into account in considering whether to give permission to continue the claim is whether the company has decided not to pursue the claim. It may therefore be advisable for a member seeking to bring an action to ascertain the company's intentions with regard to pursuing its cause of action before bringing a derivative claim, but we do not believe that that need be a mandatory precondition.
	The hon. Member for Huntingdon proposes that we enshrine in law such a mandatory condition. He takes the view that permission should be sought, at least. I have some sympathy with the proposal, but we do not believe that such a mandatory precondition would be helpful or necessary to bring a claim. We fear that going down that route would bring us right back to a number of the unsatisfactory and undefinable concepts that I have just mentioned. Although I have every sympathy with the aim in amendment No. 415, I cannot accept its mandatory nature, so I hope that it will not be pressed to a vote.

Mike O'Brien: If the hon. Gentleman had been here earlier in the debate, he would realise that I do not agree with that point at all. If the director has behaved inappropriately, we want the shareholder to be able to take a course of derivative action that will enable them to enforce the company's rights. The shareholder is seeking to enforce the company's rights—that is the key thing, and it is where I began. We need to ensure that we have the proper balance in place, and I fear that the provisions that the Opposition seek to insert into the clause would create a lack of balance, so the shareholder could not take action when they need to do so if there is impropriety by a director. This is about balance and the need for care. We have got the balance right, and although the Opposition are taking points from outside organisations, they might not have got that balance right.
	Clause 263 sets out the criteria that must be taken into account by the court in considering whether to give permission to continue a derivative claim. Subsection (2) provides that the court must—I emphasise the word "must"—refuse leave to continue a derivative claim if it is satisfied that a person acting in accordance with the duty to promote the success of the company would not seek to continue the claim; or where the cause of action arises from an act or omission that has not yet occurred, that act or omission has been authorised by the company; or where the cause of action arises from an act or omission that has already occurred, that act or omission has been either authorised or ratified by the company.
	Amendments Nos. 416 and 417 seek to add to the list of factors matters that, if established to the satisfaction of the court, would constitute a bar to the continuation of a derivative claim. The Bill's approach follows the Law Commission's recommendation that whereas ratification of a breach should constitute a bar to the bringing of a derivative action, the fact that a breach of duty is ratifiable should not constitute a bar, but should feature as one of a list of factors to which the court should have regard in considering whether to grant permission to continue the claim.
	Amendment No. 416 would add three further grounds that, if established to the court's satisfaction, would constitute a bar to the continuation of a derivative claim. Therefore, let me consider each briefly. The first new bar to the bringing of a derivative claim would be a decision by the directors not to pursue the claim, unless the court considers that there is a substantial risk that, in reaching their decision, they acted in breach of their duties to the company. That factor already appears on the list of matters that have been taken into account.
	The second new factor under the amendment would be a claim that the company in general meeting could validly decide not to pursue, unless the court considers that there is a substantial risk that a decision not to pursue the claim would be taken only as a result of votes cast by members with a personal interest, direct or indirect. It is not clear from the drafting whether the amendment refers to a claim relating to a breach of duty that the company might ratify in general meeting, or to something short of that. In either case, we do not consider that this is a matter that should bar a derivative claim. The clause already provides that where a breach of duty has been ratified, that will constitute a bar and the claim will go no further.
	The third factor that the amendment would insert into clause 263 is that pursuing the claim would not be in the interests of the company. That overlaps in an unhelpful way with the existing factor in subsection (2)(a), namely,
	"that a person acting in accordance with section 173...would not seek to continue the claim".
	It is important that clause 173 and part 11 use consistent wording.
	Amendment No. 417 would add two further grounds that are variants of those proposed by amendment No. 416, and once again we are not persuaded, for substantially the same reasons as before, of the arguments of the hon. Member for Huntingdon. I therefore ask him to consider withdrawing the amendment. If he does not do so, we will feel it necessary to oppose it.

Stephen O'Brien: I am grateful for the chance to discuss this important matter, which might not have arisen had the previous business run to the moment of interruption.
	An important question must be asked of Ministers on the Treasury Bench, who do not include a Health Minister—[ Interruption.] I see the Minister of State, Department of Health, the hon. Member for Don Valley (Caroline Flint), running to take her place. I welcome her to the debate. I hope that she is considerably more briefed on the statutory instrument than I have had the opportunity to be.
	The statutory instrument was laid before the House on 2 June this year, when Parliament was sitting and capable of dealing with it. The arrangements that the order implements were put into practical effect—came into force—on 1 July, when the House was still sitting. The question is, why are we faced this evening with a statutory instrument that was laid before the House on 2 June? I am sure that the Minister will be able to explain the reason.

Stephen O'Brien: I am grateful for your ruling, Mr. Speaker. It had struck me that to debate the point that my hon. Friend the Member for Westbury made, very perceptively, would have been to discuss the substance of the order. I recognised that that would not be relevant this evening, as your ruling on the point of order confirms.
	What matters is the fact that the order came into effect on 1 July, it having being laid before Parliament on 2 June—six or seven weeks before the House rose for the long summer recess. Why was not the order laid before the House and time found for a debate, so that we may understand the serious consequences that flow from it?
	I fully accept Mr. Speaker's ruling that we must not debate the substance of the order. Schedule 2 abolishes all the strategic health authorities with which we were so familiar and which existed in our various constituencies across England, albeit not in Scotland. Schedule 1 replaces them with a lesser number of strategic health authorities but, interestingly, there were issues about the transfer of staff, so there will be no difference. Will the Minister explain why the House was not given the opportunity to debate the order and possibly to vote to refer it to Committee? That would have allowed us to discuss the substance.

Damian Green: My hon. Friend has ensured that a Health Minister is present on the Front Bench to discuss whether one of the orders covered by motion 5 should be referred to Standing Committee. The other order mentioned in the motion relates to changes in immigration rules. I hope the Government can provide a Home Office Minister to discuss the second and equally important part of the motion.

Nigel Griffiths: I shall give more than a response—I hope I shall give the House a very satisfactory response. It is clear from motion 5 that the position has been set out. The Opposition have had June, July, August, September and now October to consider it. I note that neither my right hon. Friend the Leader of the House nor I received any intimation that this was an unsatisfactory way of proceeding on the matter. Perhaps the Opposition spent rather too long earlier not listening to the previous debate but formulating a way of raising the matter on the Floor of the House.
	Let me explain in clear terms. In the 19 years that I have been in the House, I have heard some spurious points of order. I congratulate the hon. Member for Eddisbury (Mr. O'Brien) on the creative way in which he raised the point of order. He has done very well. Far be it from me to criticise the Speaker—

Stephen O'Brien: I would very much like quickly to ask this humble Minister—given that I have never been a Minister I cannot possibly know the answer, but he will—what, if the order to be defeated, would be the consequences?

Julia Goldsworthy: I am grateful for the opportunity to raise the issue of lifeguarding.
	I shall begin by mentioning a couple of facts. First, I am a new member of the surf lifesaving association in the village where I live, Portreath, and I am learning lots at first hand about beach safety. Secondly, I managed to fall off a cliff when I was 17, which resulted in my needing to be rescued, so I have first-hand experience of such matters.
	All hon. Members appreciate that the south-west is an important tourist destination, and in many places the principal attraction is the coastline. The issue of safe beach lifeguarding is important to many families, and we have visitors to the south-west in their millions. West Cornwall alone had 1.4 million visitors between May and September this year, and the holiday season is increasing for a variety of reasons. One reason may be global warming, which means that we are getting unseasonably warm weather. One need only look at the front page of yesterday's edition of  The Guardian, which showed a little girl paddling in the sea in Sussex. Another reason may be the increasing popularity of surfing, where there are better conditions outside the peak summer weeks. Surfing is a sport that is growing in popularity, so we are seeing greater numbers in a longer season. Furthermore, we have more sophisticated materials that mean that it is possible to stay warmer for longer if one happens to venture into the water outside the summer months. Whatever the causes, more and more people are visiting beaches over a longer period of time. Although that is undoubtedly good news for the economy in the south-west, it has implications for lifeguard cover.
	I want to draw the Minister's attention to some figures from the Royal National Lifeboat Institution. The RNLI assisted 10,000 people last year, which was 2,000 more than the previous year. It saved 71 lives and carried out 718 rescues, assisting 1,448 people, and those figures cover only the beaches where the RNLI provides cover. The key question is whether lifeguard cover reflects that changing need—unfortunately, the answer seems to be no.
	At the moment, lifeguard cover is discretionary, and it is provided by local authorities mainly on an historical basis. In some cases, they provide it on publicly owned beaches; in others, they provide it on privately owned beaches. The service is discretionary in terms of not only whether there is lifeguard provision, but whether there are warning signs, whether there is any emergency equipment and even whether there is an emergency telephone. Because there is no statutory requirement to provide the service, and because there is no accompanying funding as a result, local authorities are increasingly hesitant to increase their cover or provide new services. In Kerrier and Penrith, many local authority-owned beaches are manned by only one lifeguard in the summer, with inferior equipment to that provided on RNLI-lifeguarded beaches.
	The season cover provided by local authorities is getting shorter. Anything that is not a statutory service experiences budgetary pressures to a disproportionate extent, a point which is made clear in a letter that I received yesterday from Kerrier district council:
	"Kerrier historically has provided its own life guard service and is proud of the service provided to date. There are always issues regarding the funding of discretionary services in both revenue terms and the capital investment needed to upgrade equipment...There remains pressures to reduce the cost to the council tax payer in Kerrier and this could take the form of asking private beach owners for contributions towards service provision or even removing services."
	The council states that a final decision has not been made, but the threat is there. These pressures are mainly reflected in two areas, the first of which is the length of the season when cover is provided on local authority owned or provided beaches. Kerrier district council says in its letter:
	"As regards maintaining existing levels of service Kerrier has already reduced the service to cover its main beaches during the summer peak periods and the shoulders of the season, especially half terms. This service used to include a winter patrol where, during the winter months, a beach was patrolled according to predicted surf conditions."
	I went to visit the RNLI lifeguards at Perranporth the other week, when it was very quiet because the conditions were quite rough. I talked to the lifeguard, who lives in Portreath. He said that he has had very quiet days on the beaches that he covers in Perranporth, but when he returns home to a more sheltered cove he has found up to 150 people using the beach with no lifeguard provision at all. At a time when using the beaches is becoming increasingly popular, even in the autumn and earlier in the spring, cover is being withdrawn, and that is not reflecting the areas that people are visiting.

Julia Goldsworthy: I thank my hon. Friend; I was just coming to that. I have been flicking through my local newspapers from recent weeks, and they contain several examples. On 21 September, four people had to be rescued dramatically from Hayle Towans. A father and his three sons, who were on holiday, got into trouble on the beach where there was no lifeguard provision, and the coastguard has to be called out. There is a similar story from Newquay on 7 October. The RNLI, commenting on an event where surfers had to be rescued, said that if lifeguards had been on duty, there would have been red flags that would have dissuaded people from going into the surf in such treacherous circumstances. The problem is that surfers sometimes look on bad weather as a bit of a treat and an extra challenge. There need to be clear signals that these are potentially very dangerous waters. People visiting the area may not understand the local conditions, which may not be immediately visible.

Julia Goldsworthy: Partnership working between the RNLI and local authorities already happens but the relationship is vulnerable without clarity about statutory responsibility. The RNLI is worried that, with increasing pressure on local authorities, they will slowly start to withdraw and the RNLI will be left holding the baby.
	The Government have been aware of the problem for some time. The Transport Committee raised the matter in 2005 and suggested a meeting with local authorities and the RNLI. The meeting took place and I understand that both parties were initially positive, but there has been no formal response. Although the RNLI met the Under-Secretary of State for Communities and Local Government, the hon. Member for Basildon (Angela E. Smith) on 19 July to discuss duty of care issues, again there has been no formal response. That is frustrating for those who are worried that services are being eroded and time is ticking on.
	Let me summarise the problems. Unclear statutory responsibility means that there is no funding and many local authorities with a significant coastline find that a great burden. There are also complications about beach ownership. I appreciate that that cannot be cleared up immediately or quickly but progress needs to be made.
	The RNLI proposes a compromise, which offers a viable way forward. It suggests that any beach that exceeds a specified amount of usage, whoever owns it, triggers a risk assessment of whether there should be lifeguard cover or more emergency equipment. The RNLI offers to undertake that risk assessment free of charge, provided that it goes on to determine the cover that is needed. That process could trigger negotiations about who is responsible for the duty of care on the beaches. Again, it needs to be accompanied by clarification from the Government.
	If the proposal gets Government approval, it could result in the roll-out of the RNLI's support through lifeguard provision, not only in the south-west, where it has already proved beneficial, as my hon. Friends testified, but in places such as Brighton, which cry out for access to those extra resources. If the programme that has been trialled in the south-west cannot be rolled out, we will experience declining provision when use of beaches is increasing.
	This is not an easy issue to resolve. There have been plenty of warm words, but, unfortunately, not enough action. I hope that the Government will take up the RNLI's offer, and that there will be an opportunity to respond formally to the representations made over two years. There is a fantastic opportunity before us. Cornwall's surf life saving clubs are among the most vibrant in the country, providing beach and pool lifeguards to the highest standards. The county is also bidding for the 2010 world surf life saving championships, which would be an amazing prelude to the Olympics and a real way to champion the popularity of the sport and to put Cornwall on the map. It would be ironic if we were hosting such an event but not providing world-class surf life saving lifeguard cover.
	I do not want to see our position undermined. The Minister and her Department have had long enough to consider this problem. We need to see progress, and I hope that I shall receive assurances from her tonight that that will be the case.

Andrew George: I congratulate my neighbour and hon. Friend on securing the debate. I also declare an interest as a former member of the Polurrian Surf Life Saving Club in my constituency, which is also in the shared district of Kerrier.
	Some important issues have been raised. First, although the meeting in December with the Minister's predecessor involved local authorities, I emphasise that they have not been fully involved in discussions since. Certainly, the Royal Life Saving Society needs to be involved in discussions henceforth, as it has a large body of experience in this area.
	Secondly, under financial regulations, as local authorities understand them, any expenditure over £20,00 must be put out to tender. In view of that, any contracts in relation to beaches that are the responsibility of local authorities must be put out to tender in each and every case. As far as future contracts and arrangements are concerned, that issue should be thrown into the melting pot.
	Thirdly, local authorities in my area—Penwith as well as Kerrier—have 35 years' experience of risk assessments, duty of care and ownership issues, which they have worked on with the search and rescue service based in my constituency, the Maritime and Coastguard Agency, the Royal Life Saving Society and the Chartered Institute of Environmental Health. They have established risk assessments that are now being rolled out on beaches monitored and patrolled by local authorities. It is important that that be considered in any future work undertaken. This issue is particularly knotty, and many people want to be involved to help the Government and each other to find a solution. I hope that all partners and stakeholders are involved.

Meg Munn: I congratulate the hon. Member for Falmouth and Camborne (Julia Goldsworthy) on securing this debate and raising this important issue.
	I have just been racking my brains to remember what was said on the BBC programme "Coast". I think that it was that we are never more than 73 miles from the coast—I might be wrong on the number—wherever we are in the UK. Beach safety is therefore an important issue for us all. Day trips and longer vacations to the seaside are a popular form of recreation. As the hon. Member for St. Ives (Andrew George) knows, only a month ago, I made a ministerial visit to Cornwall, where I took the opportunity to spend a little more time and to visit some of the very nice beaches. Of course, tourism makes an important contribution to local economies in many coastal towns.
	Beach safety impacts on the experience of visitors and can have a significant impact on the reputation of local areas. It is therefore important to local areas that beaches are maintained as good quality, safe environments for all. I am therefore grateful to the hon. Member for Falmouth and Camborne, other hon. Members and my hon. Friend the Member for Plymouth, Devonport (Alison Seabeck) for raising such points in debate this evening.
	The discussion on how best to promote safety and avoid accidents on our beaches has been with us for some time. As the hon. Lady stated, it was recently raised by the Royal National Lifeboat Institution, which has expressed concerns about the future of life-guarding in some areas. The concern is that some local authorities, and other beach owners that have funded provision of this service in the past, may be planning to reduce their contributions, owing to budgetary constraints.
	The RNLI is a key player in this field, having provided lifeguard services in the south and west of England since 2001, with 62 beaches being covered in the summer months. According to its own figures, its staff saved the lives of 71 people in 2005, and attended 8,664 incidents. On average, participating local authorities fund 40 per cent. of the cost of providing lifeguard services, which are administered through service level agreements.
	Recently, however, the RNLI has reported that some local authorities are becoming reluctant to renew existing SLAs, and that some are unwilling to contribute towards beach safety generally. The institute wants to reverse that trend and is calling for a lead from central Government on who is responsible for beach safety and lifeguard provision. As the hon. Member for Falmouth and Camborne noted, it has asked for a standard risk assessment for beach safety to be put in place, with a duty to provide lifeguarding once a threshold is exceeded.
	Beach safety provision is a complex issue, however. Looking at how safety on beaches should be provided and who is responsible for it reveals those complexities. The problems include determining who owns the beach and whether there currently exists a legal duty of care for a beach owner to provide protection. Another element involves deciding the practical measures that should be put in place.
	Most beaches are owned by local authorities, whose jurisdiction normally coincides with their boundaries. Coastal local authorities in England and Wales have administrative control and jurisdiction over areas down to the low-water mark. In the main, beaches not owned by local authorities are owned by private companies and charities. In those cases, those bodies would be considered to hold the primary duty of care towards beach users, where there is held to be such a duty.
	Although local authorities have a duty of care towards their service users, there is currently no statutory duty on them to ensure beach safety or produce risk assessments on beach safety. Legally, it would be unreasonable to expect a local authority, or other beach owner, to offer protection against the naturally dangerous properties of the sea. It could also be argued that to impose on any beach owner a duty to protect persons from self-inflicted harm sustained when taking voluntary risks in the face of obvious danger would also be unreasonable.
	As matters stand, it is at the discretion of a local authority or other beach owner to decide whether or not to implement beach safety measures. However, where a beach owner has created a "reasonable expectation" regarding the level of safety of a beach—for example, by promoting it to visitors or previously providing a lifeguard service— that action in itself is generally held to establish a duty of care. In other words, users would be entitled to use the beach on the assumption that appropriate safety measures would continue to be provided. Therefore, if a local authority currently providing lifeguard services decided to withdraw them, there is an argument to suggest that a risk assessment should be carried out first.
	Placing a statutory duty on beach owners to provide beach safety could be viewed as one solution to the problem of ensuring that beaches are safer, and it might reduce the number of accidents and deaths on beaches. Such a course of action could involve requiring all coastal local authorities to risk-assess the beaches falling within their jurisdiction and to provide appropriate remedies to alleviate potential problems.
	Requiring beach owners to risk-assess their beaches and provide safety measures raises a number of practical issues, however. For example, there would need to be guidance about the categories against which a beach should be assessed and who would carry out the assessment. In addition, the guidance should also cover how frequently and when the assessment should take place, as well as what level and type of risk would require safety measures.
	Clearly, placing such a requirement on beach owners would have cost implications. A cost is involved in assessing the risk level on beaches, given that the assessments would need to be conducted by a suitably qualified body.

Meg Munn: If the hon. Lady will bear with me, I shall explain why that might not be as straightforward as she suggests.
	I said that the assessments would have to be carried out by a suitably qualified body, and there is a possibility that that body would have to take out some professional indemnity insurance. Implementing additional safety measures would also carry additional costs. For the majority of beaches that are local authority owned, that could place an additional cost on them which would need to be funded.
	The Government remain committed to ensuring that the net additional costs of new policies that they impose on local government are funded as required under the Government's new burdens rules. These rules help to ensure that the Government do not put pressure on council tax. Furthermore, the forthcoming local government White Paper places a strong emphasis on providing local government with much more scope to take its own decisions on local issues. Our thinking here is that local authorities and their partners are best placed to assess the costs and benefits of actions at local level and to take a view on resulting local priorities.
	In January this year, my hon. Friend the Member for Poplar and Canning Town (Jim Fitzpatrick), then a Minister at the former Office of the Deputy Prime Minister, stated to Parliament that there were no plans to place a statutory obligation on local government to provide beach safety, and that remains our view. In practice, however, one must not overlook the fact that many beach owners already provide beach safety measures, including signage and lifeguard services, most notably where a beach is being actively promoted as a visitor destination.
	In addition, the Department for Transport funds the Maritime and Coastguard Agency, which in turn operates Her Majesty's Coastguard. Her Majesty's Coastguard is an on-call emergency organisation responsible for the initiation and co-ordination of all civilian maritime search and rescue within the UK maritime search and rescue region. This includes the mobilisation, organisation and tasking of adequate resources to respond to persons either in distress at sea or at risk of injury or death on the cliffs—I am glad that the hon. Lady avoided that when she was younger—or shoreline of the United Kingdom.